Unit 3: Additional Government Influence

Qualified Residential Mortgage (QRM) program

by Fannie Mae and Freddie Mac in an effort to reduce the risk potential of new loans. Under this potential new program: -a QRM would have a 20 percent down payment (no mortgage insurance). - follow 28/36 income and debt ratios. - allow only borrowers with an above-average credit score. - any loan that DOESN'T meet QRM standards that is to be sold to Fannie Mae or Freddie Mac, the lender would have to retain a 5 percent interest in any mortgage securities. The National Association of REALTORS® are against such a program, taking the position that such a requirement would greatly reduce the possibility of obtaining a mortgage loan for many potential homebuyers. As of December 2011, the subject is still under discussion.

Fannie Mae Mortgage-Backed Securities (MBSs)

purchases mortgage loans from mortgage companies, savings institutions, credit unions, or commercial banks, they are generally packaged into mortgage-backed securities (MBSs) and sold in international capital markets

participation financing

requiring partnership w the project developer

fiduciary responsibilities

to obtain maximum yields at low risks, trust departments usually take a conservative approach when making investments with funds left in their control.

Public Housing (Other programs)

-HUD offers monetary support to state and local governments and to nonprofit organizations to assist homeless individuals and families to move from the streets to temporary shelters to supportive housing and, ideally, back into the mainstream of American life. -HUD also helps fund cooperative housing for low-income persons, housing for the elderly, mortgage interest subsidies, relocation assistance, college housing, disaster area reconstruction, and housing in isolated areas. -HUD provides a special Good Neighbor Next Door sales program for law enforcement officers, pre-kindergarten through 12th grade teachers, firefighters, and emergency medical technicians. A discount of 50 percent of the sales price is provided in return for a commitment to live in the property for a minimum of 36 months.

Mortgage Brokers And Bankers (Mortgage Bankers or correspondents)

-Many lenders seek to make real estate loans on local properties for the easy supervision of the loans. - used by mortgage lenders, called investors to: -intermediaries not only originate new loans. - collect payments, periodically inspect the collateral involved. - supervise a foreclosure, if necessary. - Mortgage bankers literally manage real estate loans.

Mortgage Brokers And Bankers (Operation) [They DO NOT offer services as:checking account, saving accounts, teller, save deposit box]

-Some banks and bank holding companies own subsidiary mortgage banking companies to expand their latitude in creating and servicing their loans. - are privately owned. -As private entrepreneurs, they derive income from fees received for originating and servicing real estate loans. -The more loans they make, the greater their income. -mortgage bankers are under constant pressure to secure new business with which to earn substantial origination fees and increase service collection accounts. -assumes the role of an intermediary, searching out and developing new mortgage business, originating loans, selling the loans to investors, and collecting the payments on the loans for the benefit of the investors -it is less regulated than banks, because, in effect, mortgage bankers are not lending depositors' monies. -often lend their own monies, or monies that they borrow from banks, to place new loans. *** [[These loans are then pooled into homogeneous packages that satisfy the requirements of specific loan investors as to loan amounts and property locations. Such packages are then sold to these investors, while the mortgage banker retains the servicing contract]. -are involved with every type of real estate loan: * -providing funds to a developer to purchase. -improve, subdivide the land, and construct buildings - providing the final permanent long-term mortgages for individuals to buy these homes. - provides the expertise, money, and commitment necessary for the success of many real estate projects, both residential and commercial.

Texas Department Of Savings And Mortgage Lending

-is subject to the oversight and jurisdiction of the Finance Commission of Texas. - -responsible for the chartering, regulation, and supervision of the state's thrift industry. -responsible for the licensing, registration, and regulation of the state's mortgage industry. These two areas of responsibility cover the vast majority of residential mortgage lending in Texas. - responsible for enforcing the Mortgage Broker Licensing Act, requiring that mortgage brokers and loan officers meet certain requirements, obtain licenses, adhere to certain standards of conduct, and provide required disclosures to mortgage loan applicants. www.sml.texas.gov

Mortgage Brokers And Bankers (Mortgage Brokers)

-join borrowers with lenders for real estate loans -stockbrokers or real estate brokers act to bring buyers and sellers together to complete a transaction - they depend on the quality of the loans recommended

In Practice

A savings bank has just closed on $5 million worth of home mortgage loans. The loans are all for 30 years at an interest rate of 8 percent. Although these loans will provide the bank with a steady stream of income for many years, the bank is now faced with a dilemma—no more funds available to make additional mortgage loans. One way to achieve more capital would be to sell the mortgages to Fannie Mae or Freddie Mac. Of course, the bank would have to make sure that it followed the Fannie Mae/Freddie Mac guidelines with regard to the current maximum loan amount, down payment, qualifying ratios, seller contribution to purchaser's closing costs, and any private mortgage insurance requirements.

Topic IV: Agricultural Lending

Agricultural loans have to be designed with as much flexibility as possible. Rather than following a rigid payment pattern, their design must allow the farmer-borrowers the opportunity to pay when they can. It is essential, for instance, that the principal amount is not due in a bad crop year. The extension and expansion techniques designed to satisfy the special problems of the farmers are defined as open-end mortgages.

Sellers as Lenders

The single most important source of private finance funds consists of the sellers who finance a portion of the sales price with carryback loans.Sellers agreeing to carry back a portion of their equity as a junior loan subject to an existing senior loan must be aware of the risk that the buyers may not keep up the payments on the senior loan.

PRIVATE LENDERS

individuals and private loan companies. Since these lenders invest their own funds, they owe no duty to others can maintain complete discretion over their activities and the privacy of the participants' transactions. In the entire field of real estate lending, these private lenders have the most flexibility and can take the most risks. This often makes them the only source of funds for certain real estate projects.

Farmer Mac ( Mission)

its mission is to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers, and rural homeowners, businesses, and communities. This mission is accomplished by purchasing qualified loans from agricultural mortgage lenders, thus providing them with funding to make additional loans. Farmer Mac is the secondary market for agriculture loans in the same way that Fannie Mae and Freddie Mac are for conventional and government loans.

II- Mortgage REIT

significant to mortgage lending Attracting millions of dollars through the sale of beneficial shares, in which many REMTs are owned by either a parent company REIT or a commercial bank

premium

(in excess of par)

Disclosures After Settlement

Must be delivered by the loan servicer to the borrower.This document enumerates all escrow deposits and payments during the past year

Real Estate Bonds (they float the bonds)

(Municipal and Private Bonds)to finance municipal improvement projects: General obligation bonds: By issuing guaranteed by the taxing power and the full faith and credit of the community, governments can raise funds for financing schools, street improvements, sewer installations, park developments, and other civic improvement projects. Revenue bonds: issued to fund a specific community improvement project. These bonds will be repaid from the revenues generated by the improvements. Industrial revenue bonds (IRBs) : it's a kind of revenue bonds to develop an industrial park or construct buildings that might be leased to commercial tenants. Industrial development bonds: allow private investors an opportunity to finance apartment and commercial developments by using tax-exempt, and thus relatively inexpensive funds. Mortgage revenue bonds : are a form of industrial development bond. The bond issue is tax exempt because it is offered by state and local governments through their housing financing agencies. Use for the proceeds of the bond sales is limited to financing segments of the housing markets, such as low-income buyers, first-time buyers, and so on.limitations are imposed as well, such as the prices of homes eligible for participation in the bond program and the income of the borrowers. Zero-Coupon Bonds: represent an old approach to bond buying.A buyer writes a check for a bond at a discounted price and holds this bond until maturity or until it is sold. Mortgage Loan Bonds: These loans are available to eligible persons to help them acquire houses and condominium units. The interest income from these bonds is tax exempt at both the federal and state levels, so their purchasers can buy them at lower rates than would be required on taxable investments.

III- Combination (Hybrid) Trusts

**join real estate equity investing with mortgage lending,thus earning profits from rental income and capital gains as well as mortgage interest and placement fees

Pension And Retirement Programs

- held by life insurance companies - a larger portion of U.S. savings have been in pension and other retirement programs. -pension fund managers have increasingly been purchasing blocks of mortgage-backed securities

REMTs (Real Estates Mortgages Trusts) : Sources of Income

- mortgage interest. - loan origination fees. - profits earned from buying and selling mortgages. - participate in long-term permanent financing. - more inclined to invest in short-term senior and junior loans, where higher potential profits prevail.

Real Estate Trusts

-real estate trusts taxes are only imposed at the beneficiary level. -is sold like stock on the major exchanges

Types of corporates bonds:

-secured bonds: are backed by a mortgage on specifically described real property. - unsecured bonds or debentures:When a company issues bonds that are a claim against its general assets.

THE SAVE ACT (Secure and Fair Enforcement Mortgage Licensing Act (SAFE Act))

-was signed into law in 2008 as part of the Housing and Economic Recovery Act (HERA). -applies to all mortgage brokers and mortgage bankers. -designed to provide more consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators (MLOs). -Consumer Financial Protection Bureau (CFPB) (in July of 2015) is responsible for SAFE Act regarding to state licensing and registration .

Credit Unions

-were originally authorized by President Franklin Roosevelt in 1934 -provide their members with a source of funding for personal property such as autos or furniture, home improvements, home equity loans, and real estate. - charter and supervise federal by Credit Union Administration (NCUA) (created in 1970) as an independent federal. -National Credit Union Share Insurance Fund (NCUSIF) was established to insure credit union deposits' -the NCUA & FDIC have the ability to place a credit union in conservatorship due to their losses on investments in mortgage-backed securities (2009). -generally are not governed by federal, state, or local banking regulations, providing them greater flexibility in making loans. - specialize in personal property loans. - participants in real estate finance as they offer highly competitive interest rates and low loan placement fees. -involved in the secondary markets by pooling their mortgage loans into various real estate mortgage investment conduits (REMICs).

Community Development Block Grants (CDBG)

1- is one of HUD's longest continuously running programs. 2- Since 1974, the CDBG program has helped communities with economic development, job opportunities, and housing rehabilitation. 3- funds have been used to construct and improve public facilities such as water, sewer, streets, and neighborhood centers; to purchase real property; and to assist private businesses. 4- CDBG funds are split between states and entitlement communities

Real Estate Bonds

1- issue and sale of mortgage bonds by business firms, usually corporations, to raise capital. 2-issue and sale of municipal, county, or state bonds to finance community improvements, such as schools, parks, paving, sewers, and renewal projects.

QUIZ #5

1-Mutual banks are owned by their depositors. A/ The statement is TRUE. These banks are organized as mutual companies in which depositors-owners receive profits as interest or dividends on savings accounts and leading local business people make up the boards of directors 2- Federally-chartered savings banks must participate in the FDIC insurance program. A/The statement is TRUE. All savings banks must be chartered, either by the OCC or by the state in which they are located. All federally-chartered savings banks are required to participate in the federal FDIC insurance program. 3-Mortgage bankers generally service the loans they create, collecting payments, inspecting the properties, and foreclosing where necessary A/The statement is TRUE. These intermediaries not only originate new loans but also collect payments, periodically inspect the collateral involved, and supervise a foreclosure, if necessary. Mortgage bankers literally manage real estate loans. 4-Mortgage brokers generally specialize in loans for large-scale residential, commercial, and industrial developments A/The statement is TRUE. Much as stockbrokers or real estate brokers act to bring buyers and sellers together to complete a transaction for which the brokers are duly compensated, mortgage brokers join borrowers with lenders for real estate loans. 5-Organizations that collect money from depositors and lend these funds to borrowers are called financial fiduciaries. A/The statement is TRUE. These fiduciary organizations manage and guard entrusted funds over a period of time. The funds must be protected so they are available to their owners, dollar for dollar, when called for according to established arrangements. 6-Real estate trusts must be beneficially owned by at least 100 investors. A/The statement is TRUE. The trust must be beneficially owned by at least 100 investors. Real estate trusts are designed to provide vehicles by which real estate investors can enjoy the special income tax benefits already granted to mutual funds and other regulated investment companies. 7-Municipal general obligation bonds are backed up by liens on the properties they improve. A/The statement is FALSE. They are backed by the communities' taxing power. 8-Life insurance companies invest up to 30 percent of their assets in real estate finance. A/The statement is TRUE. Life insurance companies have always played a major role in the real estate mortgage market. Approximately 30 percent of their assets are invested in all types of real estate loans. 9-The most important sources of nonfiduciary loans are the sellers' carryback finance. A/The statement is TRUE. The single most important source of nonfiduciary finance funds consists of the sellers who finance a portion of the sales price with carryback loans. In fact, seller financing has become the only way many sales can be consummated 10-Real estate investment trusts are designed to deal in equities. A/The statement is TRUE. Designed to deal in equities, real estate investment trusts (REITs) are owners of improved income properties, including apartments, office buildings, shopping centers, and industrial parks. As an equity trust, the REIT can offer small investors opportunities to pool their monies to participate as owners of larger and, hopefully, more efficient and profitable real estate investments 11-Commercial banks are designed primarily to provide financing for single-family owner-occupied homes. A/The statement is FALSE. Commercial banks are designed for commercial banking activities. 12-Foreign investment in the American economy has been increasing A/The statement is TRUE. Although many countries have been dealing with financial crises, the United States still attracts foreign money. A direct impact on real estate can be seen in New York City, where Chinese investors have poured more than $1 billion into real estate loans 13-Credit unions are established as nonprofit financial organizations. A/The statement is TRUE. Created in 1970 under the National Credit Union Administration (NCUA), the 7,000-plus credit unions in the United States are nonprofit financial organizations into which worker members deposit their savings, usually through regular payroll deductions. 14-Mortgage brokers generally arrange to collect the payments on the loans they create A/The statement is FALSE. Mortgage brokers generally do not service loans. QUIZ #6 1-When two or more properties are pledged as collateral in one loan, a clause releasing a portion of the collateral is often included: A/The statement is TRUE. A release agreement is needed to release part of the property without paying the entire debt at that time. 2-To subordinate a real estate loan is to put it into a higher lien position. A/The statement is FALSE. As its name implies, a second mortgage, or deed of trust, is a lien on real property that is second, or junior, in position behind an existing first lien 3-A deed of trust used in a real estate loan includes a trustee-holder of the property in trust, a trustor-borrower, and a beneficiary-lender A/The statement is TRUE. This basic instrument is used to finance real estate. The trustor grants rights to real property that is held by the trustee for the benefit of the beneficiary. 4-A mechanic's lien is a form of voluntary lien A/The statement is FALSE. A mechanic's lien is a form of involuntary lien. 5-The strongest form of prepayment clause whereby a borrower would not be allowed to pay off a mortgage loan before a specified time is called a nonrecourse clause A/The statement is FALSE. The strongest form of prepayment clause whereby a borrower would not be allowed to pay off a mortgage loan before a specified time is called a lock-in clause. 6-A statutory period of redemption gives the borrower the opportunity to redeem the loan any time specified by law after the foreclosure sale. A/The statement is TRUE. These statutory periods of redemption vary from three months to two years, depending on the state. 7-The most common type of physical encumbrance on a property is a utility easement providing access. A/The statement is TRUE. Almost every parcel of real property has some form of physical encumbrance imposed on it. Most common is the utility easement that provides the accessibility, both under and over the land, for the installation of water, gas, electric, telephone, and sewer services. An encumbrance is a right or interest in a property held by one who is not the legal owner of the property. 8-The mortgage form of a real estate loan includes a mortgagee-borrower and a mortgagor-lender. A/The statement is FALSE. The opposite is true. The mortgagor is the borrower and the lender is the mortgagee 9-The power-of-sale clause in a deed of trust allows the trustee to foreclose without notice A/The statement is FALSE. The trustee must follow formal foreclosure procedures. 10-A real estate loan is a specific involuntary lien. A/The statement is FALSE. It is a voluntary lien. SUMMARY UNIT#7 There are two general categories of real estate loans: conventional and governmental. There are many variations of conventional loans. Those that meet the qualifying guidelines of Fannie Mae and Freddie Mac are called conforming loans and may be either fixed or adjustable rate. Other types of conventional loans include jumbo, home equity, and reverse mortgages. For conventional loans with less than a 20 percent down payment (80 percent LTV) private mortgage insurance is required. Governmental loans include FHA insured, VA guaranteed, USDA for rural housing, and other state or local government programs. Subprime lending meets the needs of those who do not qualify for "A" paper loans. Although not necessarily predatory, a subprime loan may become predatory when excessive interest rates or fees are charged. Another form of predatory lending exists when a lender forces a borrower into a subprime loan unnecessarily or encourages the homeowner to enter into a home equity loan with no possible hope of repayment. There are many variations in format for conventional loans including open-end, construction, blanket, leasehold, manufactured housing, purchase-money, bridge, and wraparound. There are also numerous ways available for both mortgage and equity participation in a purchase. A major source of tax-free dollars becomes available through the refinancing of the equity accumulated in real property. As borrowed money, refinancing proceeds are not taxable income but will be taxed when the property is sold. A useful commercial property financing arrangement is the sale-leaseback. This plan involves selling real estate to an investor and, at the same time, leasing it back. As an alternative to financing a large commercial real estate development, some financiers participate in the profits by purchasing the entire project and then reselling it to the developer on a long-term installment contract. Probably the most complete example of equity participation is the joint venture, in which a financier joins with a developer as a full partner in a commercial project. There are numerous tax advantages to owning real estate, including installment sales and Internal Revenue Code Section 1031 exchanges

TEST Unit #3

1- The Federal Agriculture Mortgage Corporation (Farmer Mac) purchases guaranteed portions of : USDA loans. The answer is USDA LOANS. As a stockholder-owned, publicly traded corporation, Farmer Mac, along with its subsidiary Farmer Mac II, LLC, conducts these activities through three programs: Farmer Mac I, Farmer Mac II, and Rural Utilities. 2-Which HUD department promotes providing decent, safe, and affordable housing for lower-income Native American, Alaska Native, and Native Hawaiian families? Office of Native American Programs (ONAP The answer is OFFICE OF NATIVE AMERICAN PROGRAMS (ONAP). HUD created this department to work closely with tribes and tribe-designated housing entities to administer their own programs 3-The Farm Credit System network of financial institutions may provide credit to farmers and ranchers for all of the following EXCEPT: the purchase of a home in an urban area. The answer is THE PURCHASE OF A HOME IN AN URBAN AREA. FHA provides lending activities in urban areas. The formation of the Farm Credit System was specifically intended to meet the needs of rural communities. 4-The activities of the Farm Credit System are complemented by the: USDA. The answer is USDA. The USDA provides technical assistance and financial backing for rural businesses and cooperatives to create quality jobs in rural areas. The program develops partnerships with rural communities to reverse the downward spiral of rural job losses, out-migration, and diminishing services. 5-The Housing Choice Voucher Program allows a public housing authority to use a portion of their available funds to: provide mortgage payment subsidies for qualified applicants. The answer is PROVIDE MORTGAGE PAYMENT SUBSIDIES FOR QUALIFIED APPLICANTS. The Housing Choice Voucher Program assists very low-income families, the elderly, and the disabled to obtain safe and affordable housing. The program was originally only for rental subsidies and was called Section 8. But under legislation passed in 2001, individual Public Housing Authorities (PHA) can now use a portion of their housing choice vouchers to assist first-time homebuyers. 6-The secondary market for agricultural and rural housing mortgage loans was created by Congress and is known as: Farmer Mac. The answer is FARMER MAC. Through the Farmer Mac 1 Program, Farmer Mac purchases qualified loans from agricultural mortgage lenders to replenish the lenders' source of funds to make new loans. Loans are then packaged and sold as securities. 7-HUD sponsors urban renewal projects, which can include all of the following EXCEPT acquisition of rural properties. The answer is ACQUISITION OF RURAL PROPERTIES. Urban renewal projects focus on blighted communities in cities, not rural areas. 8-As part of the Housing and Economic Recovery Act of 2008 (HERA), HUD authorized a Neighborhood Stabilization Program to reduce sources of abandonment and blight in communities by providing funds to: acquire and redevelop foreclosed properties The answer is ACQUIRE AND REDEVELOP FORECLOSED PROPERTIES. This action was in keeping with HUD's mission to help create decent homes and suitable living environments for all U.S. citizens. 9- Effective July 21, 2011, the Real Estate Settlement Procedures Act (RESPA) is administered by the: Consumer Financial Protection Bureau. The answer is CONSUMER FINANCIAL PROTECTION BUREAU. Previously, RESPA was administered under the Federal Housing Administration (FHA). The new rule includes a required, standardized good-faith estimate to facilitate shopping among settlement service providers and to improve disclosure of settlement costs and interest rate related terms. The HUD-1 was improved to help consumers determine whether their actual closing costs were within established tolerance requirements. 10-Which act did Congress pass in 1977 to ensure that financial institutions pursue their responsibilities to meet both deposit and credit needs of members of their communities? Community Reinvestment Act (CRA) The answer is the COMMUNITY REINVESTMENT ACT (CRA). Before this act, banks and insurance companies would not provide lending services within certain geographic locations, which is called redlining. Redlining is the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people (usually by race or sex), no matter the geography. 11-HUD is responsible for all of the following EXCEPT: The answer is FANNIE MAE. The Federal Housing Finance Agency is an independent agency that regulates the government-sponsored entities of Fannie Mae, Freddie Mac, and the Federal Home Bank. 12-The annual percentage rate (APR) can BEST be described as : The answer is DISCLOSING THE TRUE YIELD ACHIEVED BY THE LENDER. The true cost of financing disclosed as the annual percentage rate includes a calculation based on a combination of the stated interest rate, any discount points, and additional lender fees. It is an attempt to provide consumers with a tool to compare lender quotes. 13-Agricultural loans present a unique risk factor and are designed with as much flexibility as possible to allow for all of the following EXCEPT: The answer is CHANGES IN THE FEDERAL DISCOUNT RATE. Although management skills can be evaluated from past experience, nobody can predict the influence of nature on each season's crops. and other unforeseen circumstances. 14- RESPA does NOT require that the lender provide a borrower with a : The answer is HUD-1 CLOSING STATEMENT. RESPA requires lenders to provide a good-faith estimate, HUD-1 settlement cost booklet, and mortgage servicing disclosure statement. 15-The U.S. Department of Agriculture Rural and Community Development Program was created in 1994 and combined all of the following agencies EXCEPT: The answer is FEDERAL HOUSING ADMINISTRATION. The Farmers Home Administration, Rural Development Administration, and Rural Electrification Administration were combined into the U.S. Department of Agriculture Rural and Community Development Program to increase efficiency and avoid duplication of services. The FHA is not focused on rural areas. 16-Under the Home Mortgage Disclosure Act (HMDA), mortgage originators are required to report all of the following information about applicants EXCEPT: The answer is PROFESSION. Applicants' income level, racial characteristics, and gender are reported to show whether there is pattern of discrimination because it also must be reported on loans originated and applications rejected 17-The disclosure of all elements of financing in advertising is required under: The answer is REGULATION Z OF TILA. The trigger terms for disclosing all elements of financing in advertising include the rate of interest, number of payments, term of the loan, amount of monthly payment, down payment amount, and percentage of down payment. 18-RESPA covers the sale of residential properties and the acquisition of: The answer is MORTGAGE LOANS. RESPA covers the acquisition of mortgage loans, including home equity loans, second mortgages, and refinancing on residential properties. 19- Which HUD office enforces the Fair Housing Act and other civil rights laws? The answer is OFFICE OF FAIR HOUSING AND EQUAL OPPORTUNITY (FHEO). In some instances, fair housing complaints are handled at the state level if the state has an equivalent enforcement program; however, enforcement was created at the federal level when states were unwilling to intervene on behalf of all U.S. citizens. 20- A lender may ask whether an applicant is any of the following EXCEPT : The answer is DIVORCED. The term unmarried denotes a single, divorced, or widowed person, and in a community property state, this is of particular interest. In Texas, separation is not recognized as a legal status and the spouse would have ownership of the property because the spouse will be required to sign the deed of trust. 21- The purchases of debt securities issued by the member banks in the Farm Credit System (FCS) are assured of timely payment of principal and interest by the: The answer is the FEDERAL FARM CREDIT SYSTEM INSURANCE CORPORATION (FCSIC). Unlike commercial banks, the banks in this system do not take deposits, nor do they usually borrow from other banks. Instead, these banks raise funds by issuing farm credit debt securities on a worldwide basis in the domestic and global capital markets. Although the U.S. government does not guarantee the debt securities, the FCS possesses a farm credit insurance fund, which would supply principal and interest payments should a system bank go bankrupt. System institutions are federally chartered under the Farm Credit Act and are subject to supervision, examination, and regulation by the Farm Credit Administration. 22- The type of report a developer must provide to HUD in compliance with marketing residential land to potential buyers under the Interstate Land Sales Full Disclosure Act is called a(n): The answer is STATEMENT OF RECORD. This report must be filed with HUD. Also, the buyer must receive a property report prior to the purchase of the property. 23- The primary activities of HUD include all of the following EXCEPT : The answer is REGULATING THE FEDERAL HOUSING FINANCE AGENCY. HUD is the federal agency responsible for national policy and programs that address housing needs. The Federal Housing Finance Agency was established under the Federal Housing Reform Act of 2007 as an independent agency to regulate the government-sponsored entities of Fannie Mae, Freddie Mac, and the Federal Home Bank. 24- Lenders are required to provide a good-faith estimate (GFE) at the time of application within how many businesses days? The answer is THREE. At the time an application is triggered, lenders must disclose to borrowers the settlement costs and whether they have to use a specific service. 25-The Farm Credit System (FCS) is a nationwide network of borrower-owned financial institutions that do all of the following EXCEPT: The answer is TAKE DEPOSITS. The FCS was created to provide American agriculture with a source of sound, dependable credit at competitive interest rates. 26-The funds used for lending by the FCS banks in rural areas are raised through the: The answer is SALE OF BONDS AND NOTES. The funds used for lending are raised through the sale of bonds and notes in national capital markets. The Federal Farm Credit Banks Funding Corporation manages the sale of system-wide debt securities. Purchasers of these securities are assured of timely payment of principal and interest by the Farm Credit System Insurance Corporation (FCSIC). 27: A developer is planning a new subdivision of building lots. In which case will the developer be subject to the Interstate Land Sales Full Disclosure Act? The answer is IF THE SUBDIVISION WILL BE MARKETED OUT OF STATE. The Interstate Land Sales Full Disclosure Act established the informational criteria for marketing residential land to potential buyers. It was designed to reduce fraud in land sales by developers. Anyone selling or leasing 25 or more lots of unimproved land as part of a common plan in interstate commerce must comply with the act's provisions.

Organization

1-Was established with an initial subscription of $100 million from the 12 Federal Home Loan Banks and placed under the direction of three members of the Federal Home Loan Bank Board. 2-Was given the authority to raise additional funds by floating its own securities, which were backed by pools of its own mortgages. 3- Since 1989, Freddie Mac has become an independent stock company and is a government-sponsored enterprise (GSE) like Fannie Mae. As a major player in the secondary market, Freddie Mac buys mortgages and place them into participation certificates (PCs), and sells the securities to investors on Wall Street. As part of the Housing and Economic Recovery Act of 2008, Freddie Mac came under the supervision of the Federal Housing Finance Agency (FHFA).

property report

1. Must be delivered to the buyer prior to the purchase of the property. 2. The seller must have a signed receipt from the buyer indicating the buyer received the property report. 3 .If a property report is received within 48 hours prior to signing, the buyers have the right to change their minds within seven days, cancel their contract, and receive a return of any deposits made. 4. However, if the report is not received within the allotted time, the buyers may legally rescind their contract at any time. 5. Whereas ILSFDA was once a subagency of HUD, its enforcement has been shifted to the new Bureau of Consumer Financial Protection.

participation certificates (PCs)

Bought mortgages that meet stated guidelines and product standards and sells the securities to investors on Wall Street.

Types of corporates bonds: ( according to their method of payment).

Coupon bonds: have interest coupons attached, which are removed as they become due and are cashed by the bearer. Bearer bonds: Interest is paid to the person possessing the coupon. Registered bonds: issued to a specific owner and cannot be transferred without the owner's endorsement. Under this form of bond, interest is paid to the last registered owner. ** they may be classified by their purpose—for example, refunding, construction, equipment, or improvement bonds. **classified further as to the nature of the issuer—for instance, railroad bonds, industrial bonds, or corporate bonds.

There are three types of REITs ( Real Estates Investment Trust):

Equity REIT: invests in real estate; income derived from rents or sale of property • Mortgage REIT: lends money for mortgages or purchases mortgages or mortgage-backed securities; income derived from interest earned • Hybrid REIT: combines equity REITs and mortgage REITs by investing in both property and mortgage

Underwriting Standards

Freddie Mac generally follows the same conforming loan standards as Fannie Mae. One exception is that Freddie Mac only looks at total debt-to-income ratio with no set percentage for housing expense. The amount of down payment and qualifying ratios varies with different loan products.

Unit 3: Additional Government Influence Topic I: The U.S Department of Housing and Urban Development (HUD). HUD is the federal agency responsible for national policy and programs that address America's housing needs, improve and develop U.S. communities, and enforce fair housing laws. HUD's mission is to help create a decent home and suitable living environment for all U.S. citizens ( Duties)-->

HUD's primary activities include: •supervising the Federal Housing Administration (FHA); •directing Ginnie Mae; •enforcing the Fair Housing Act and RESPA regulations; •managing the Housing Choice Voucher Program (formerly Section 8 Housing); •managing the Indian Housing Act; •regulating interstate land sales registration, urban renewal, and rehabilitation programs; and •supervising public housing projects. .to provide information on home ownership to the public. The HUD Web site (www.hud.gov) is a tremendous resource for the public and for real estate practitioners.

Conforming loans

Loans that fit their qualifying standards (Fannie Mae & Freddie Mac)

Other bank activities

Loans to borrowers based on the equity in their homes are a popular product for commercial banks. The Internal Revenue Service (IRS) has eliminated tax deductions for interest paid on consumer loans but preserved the deductions for interest paid on home loans. * participate in real estate financing through at least three other avenues: - by operation of their trust departments. - by acting as mortgage bankers (including the ownership of mortgage banking companies). -and by direct or indirect ownership of other lending businesses. -Commercial banks also participate in real estate financing through at least three other avenues: by operation of their trust departments; by acting as mortgage bankers (including the ownership of mortgage banking companies); and by direct or indirect ownership of other lending businesses

[Bonds can be used to secure funds for financing real estate projects in two distinct ways]

Municipal Bonds: Bonds in the latter group are termed collectively. (excepted of federal taxes and often estate taxes). Corporate Bonds:Corporate bonds are credit instruments used to raise long-term funds.

Fannie Mae Mortgage Loan Products

Offers both fixed and adjustable-rate mortgage loans in a variety of different loan products.

Ginnie Mae Platinum Securities

Program allow investors to combine Ginnie Mae MBSs pools into a single security and receive one payment each month rather than separate payments from individual pools.

Mortgage Insurance Programs

Some states have developed special real estate Mortgage insurance programs of their own, funded by the state itself. The state sells either general obligation bonds repaid from state income tax collections or, more frequently, revenue bonds repaid from the mortgage insurance premiums collected. The funds raised from the sale of these bonds are used primarily as reserves for backing specific development projects. The Texas Department of Housing and Community Affairs (TDHCA) is the lead agency in Texas responsible for affordable housing, regulation of the state's manufactured homes, and homebuyer assistance programs. TDHCA's mission is to help Texans achieve an improved quality of life through the development of better communities. The department accomplishes this mission by acting as a conduit for federal grant funds for housing and community services. However, because several major housing programs require the participation of private investors and private lenders, TDHCA also operates as a housing finance agency. For m

FREDDIE MAC

The Emergency Home Finance Act of 1970 created the Federal Home Loan Mortgage Corporation (FHLMC), now known as Freddie Mac. Freddie Mac was organized specifically to provide a secondary mortgage market for conventional loans originated by the savings associations and thrifts that are members of the Federal Home Loan Bank System (FHLBS).

I- Equity REIT

The REIT's income is derived from two sources: (1) the net profits secured from its rental activities (2) the capital gains made when these rental properties are sold. All profits are subject to income tax but only at the participant's level

Disclosures at Settlement

The lists the actual costs side-by-side with the estimated costs, giving borrowers documentation for their records plus protection from possible fraud or predatory lending practices.

Private Loan Companies

These companies make loans from their own funds or monies borrowed from their commercial banks, act as mortgage brokers in arranging loans between other lenders and borrowers,

Real Estate Trusts **if the investment trust fails, the beneficiary's investments are lost. Thus, high risks ride in tandem with potentially high profit investments

To qualify for the advantages of being a pass-through entity for U.S. corporate income tax, a real estate investment trust must • be structured as a corporation, trust, or association; • be managed by a board of directors or trustees; • have transferable shares or certificates of interest; • be taxable as a domestic corporation; • not be a financial institution or insurance company; • be jointly owned by 100 or more persons; • have 95 percent of its income derived from dividend interest or property income; • have no more than 50 percent of the shares held by five or fewer individuals during the last half of each taxable year (5/50 rule); • have at least 75 percent of its total assets invested in real estate; • derive at least 75 percent of its gross income from rents or mortgage interest; • have no more than 20 percent of its assets invested in taxable REIT subsidiaries; and • distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

Private Lenders (Individuals)

When other financing is not available, the sellers of property often have to provide the funds to close the deal. Arrangements for seller financing are usually made in the negotiations directly between the buyer and seller.

The Home Mortgage Disclosure Act (HMDA)

all mortgage originators are required to report information relating to income level, racial characteristics, and gender of mortgage applicants. This includes loans originated as well as applications rejected

Commercial Banks

capital, including savings, loans from other banks, and the equity invested by their owners, commercial banks rely mainly on demand deposits

Mortgage Brokers And Bankers (Operation line of credit).

commitment to the mortgage banker to lend certain sums of money during the construction period until funds are received from the investors for mortgage settlements. **These short-term loans fit perfectly into the commercial banks' requirements, and essentially these banks become warehouses for mortgage money

statement of record

developer must provide HUD with a statement of record that includes explanations and descriptions of existing and proposed encumbrances, improvements, utilities, schools, recreation areas, roads, and all services to be provided for the residents' use

Foreign Lenders

foreign investors mainly from China have been impacted

junior financing

private lenders deal in arrangements that use a borrower's equity in real property as collateral.

Real Estate Bonds (Corporate Bonds)

issue of corporate bonds to raise funds for real estate capital improvements, such as plant expansion or new equipment acquisition. After the bonds are sold, their values fluctuate with the money market

Mortgage Brokers And Bankers (origination fee)

lenders charge the borrower a placement or origination fee to cover the cost of creating the new loan—for the loan officer, processing, underwriting, closing, and all materials needed. -

Mortgage Loan Activities

most large commercial banks participate fully in home mortgages. Some of these loans may be kept in the bank's own portfolio, but most often the loans are packaged and sold in the secondary market to Fannie Mae, Freddie Mac, or other investors to round out their own investment portfolios. Some commercial banks make loans to farmers for the purchase or modernization of their farms or for financing farm operations.

Mortgage Brokers And Bankers warehouse of funds

paying the commercial bank's interest requirement until the final funding from the investor satisfies the warehouse commitment

Tax Increment Financing

technique allocates the increased property tax revenues derived from redevelopment to pay the debts incurred in improving the area. It requires that property taxes be frozen as of the date the redevelopment plan is adopted

par

(Regarding the purchase of the FHA and VA loans) at full face value, making Fannie Mae an important and sought-after provider for the real estate mortgage market.

Public Housing (Housing Choice Voucher Program)

- It is the federal government's major program for assisting very low-income families, the elderly, and the disabled to obtain safe and affordable housing. - Only for rental subsidy and was referred to as Section 8. Families seeking assistance apply through their local public housing agency. Tenants have the freedom to select housing where they want to live within a standard rent range. - Assist first-time homebuyers. PHAs individually make the determination of how much of their funding they wish to allocate to this Homeownership Voucher Program. FHA sets minimum income and employment requirements. .

When Fannie Mae purchases mortgages:

- a servicing agreement is executed allowing the loan originator-seller to act as a collection agent for a specified fee. This fee, a rate of approximately one-fourth to three-eighths of 1 percent of the mortgage amount. - creates a substantial source of income for the originator, depending on the size of its mortgage loan portfolio. Loan originators derive a large portion of their mortgage investment income from origination and collection fees. In many cases, especially with the mortgage bankers who issue the bulk of FHA and VA loans, the more loans that can be created, the higher the potential profits. - the Fannie Mae secondary mortgage market allows loan originators an opportunity to roll over their money: By selling their mortgages, these originators can secure more funds for making additional loans, thereby collecting more origination fees. When Fannie Mae sells its mortgages, it does so in open-market transactions in which the purchasers are required to pay current prices for the securities.

Mutual Savings Banks

- are organized as mutual companies in which depositors-owners receive profits as interest or dividends on savings accounts, and leading local business people make up the boards of directors. - The boards maintain their integrity and continuity by controlling the appointments of new directors. - take a strongly conservative investment attitude, reflecting the safety requirements of their depositors. Mutual savings banks play an active and important role in local real estate financing activities: - providing long-term mortgage loans (More than 70 percent of their assets are derived from savings accounts, which by definition have a long-term quality) -are limited in their lending activities by their charters. These limitations vary from state to state and are also further affected by specific bank policies.

Real Estate Mortgage Investment Conduits (REMICs)

- established under the Tax Reform Act of 1986. -are companies that hold pools of mortgages that back up securities collateralized by the mortgage cash flows. - are structures for the private securitization of real estate mortgages. -contributed to the opening of the general capital markets to real estate lenders. *Fannie Mae, Freddie Mac, and Ginnie Mae all offer REMIC multiclass, mortgage-backed securities. *A popular REMIC is the commercial mortgage-backed securities (CMBS) pool

FHFA Actions

-Establishes the conforming loan limits and sets goals for the percentage of loans to be made to low- and moderate-income households each year. - On October 24, 2011, changes to the Home Affordable Refinance Program (HARP) were announced that should make the program available to more homeowners who are underwater in their mortgages. -The new program eliminates some risk-based fees, removes the current 125 percent loan-to-value ceiling. -eliminates the need for a new appraisal, and extends the end date for HARP until December 31, 2013, for loans sold to Fannie Mae or Freddie Mac on or before May 31, 2009 -On November 22, 2011, FHFA announced that maximum conforming loan limits will remain at existing levels throughout the country, except for Fairfield County, Connecticut. Under the terms of the Housing and Economic Recovery Act (HERA),

Government-sponsored enterprises (GSEs).

-Fannie Mae -Freddie Mac -The Federal Home Loan Bank (FHLB) -to register their securities with the Securities and Exchange Commission -they were not required to pay state and local corporate income tax. - allowed to carry a large line of credit with the Treasury Department. -Although their debt securities and mortgage-backed securities (MBSs) were never officially backed by the federal government, there was a public conception that the government would never allow Fannie and Freddie to default on their obligations. -Over four decades, Fannie Mae and Freddie Mac grew rapidly and dominated the secondary market for conforming loans.

Freddie Mac Loan Products

-Freddie Mac purchases both fixed and adjustable rate loans for a predetermined amount of time from 15-year, 20-year, 30-year, and, in some cases, 40-year terms. -Loans may be for the purchase or refinance of owner-occupied single-family dwellings, condominiums, planned unit developments (PUDs), and manufactured homes. -Loans are also available for one-unit to four-unit primary residence and investment properties, and single-unit second homes.

Collateralized Mortgage Obligation (CMO)

-loans tied to short-term interest rates. -adjustable-rate mortgages were often sold to consumers on the premise that they could always refinance before the initial rate increased. Subprime lending doubled and tripled as these high-risk types of loans were originated, often based on lax underwriting standards. -Fannie Mae and Freddie Mac saw their market shares drop, they too began purchasing these "exotic" loans. Operating as real estate mortgage investment conduits (REMICs), life insurance companies, pension funds, securities dealers, and other financial institutions began creating new loans for their own portfolios, as well as buying and selling loans from other originators. The bubble burst. in 2006 and borrowers were unable to refinance because of lowered property values, the rate of foreclosure went up throughout the country, and by 2007, both Wall Street and Main Street were in trouble.

Life Insurance Companies

-play a major role as largest share of savings in the United States followed by securities and mutual funds savings. -one of the largest industries in terms of tax revenue on both the state and federal level. -invest in municipal bonds - provide businesses with capital for research or expansion. - invest in commercial real estate. -prefer to finance larger real estate projects like shopping centers, leaving smaller loans such as home mortgages and construction financing to other lenders. -try to enhance the profitability and safety of their positions by insisting on equity positions in any major commercial project they finance, requiring partnership w the project developer -purchase blocks of single-family mortgages or securities from the secondary mortgage market. -they do not pay dividends. This allows these companies to participate competitively in the real estate mortgage market. - play an indispensable role in providing funds for real estate developments.

Mortgage Lending Activities(Savings Associations/thrifts)

-the thrifts have the most flexibility in their mortgage lending operations. -some limitations are imposed by federal or state regulations, savings banks can make conventional mortgage loans for up to 100% of a property's value. -commonly the loans are based on an 80 percent loan-to-value ratio with private mortgage insurance (PMI) required for any loan with higher than an 80 percent LTV (loan-to-value). - participate in the FHA-VA loan market.

GINNIE MAE Government National Mortgage Corporation (Ginnie Mae)

-was created in 1968 as a government-owned corporation -under the direction of the Department of Housing and Urban Development (HUD). - to provide financing for special assistance programs and operate the securities pool. - Its mission is to expand affordable housing in America by linking domestic and global capital markets to the nation's housing markets. -Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBSs) but instead guarantees that investors will receive timely payments of principal and interest on MBSs backed by federally insured (FHA) or guaranteed (VA) loans. -Other eligible loans for Ginnie Mae MBSs are those originated by: - the Department of Agriculture Rural and Community Housing (RHS). - HUD's - Office of Native American Programs (ONAP). ***Ginnie Mae MBSs are fully modified pass-through securities guaranteed by the full faith and credit of the U.S. government. Regardless of whether the mortgage payment is made, the investor receives the full principal and interest payment.

Public Housing

. provides financial assistance to local authorities for acquisition and operation of properties for public housing programs, such as: . grant monies . housing subsidies, and other means of support. . helps finance public housing agency projects to integrate public housing into surrounding communities . provide residents the skills to contribute to their communities.

Interstate Land Sales Full Disclosure Act (ILSFDA),

.Passed by Congress in 1968. .Established the informational criteria for marketing residential land to potential buyers. . Designed to reduce fraud in the sales of land by developers, the law requires that anyone selling or leasing 25 or more lots of unimproved land as part of a common plan in interstate commerce must comply with the act's provisions. EXCEPTIONS include subdivisions of five acres or more, cemetery land, commercial and industrial land, and any residential subdivision marketed exclusively in the state where it is located.

Farm Credit System (FCS)

1- Designed to serve the particular financial needs of farmers and ranchers such as: -provides funding for land acquisition, home and accessory buildings, equipment purchases, and general farm and ranch operations. -The U.S. Department of Agriculture Rural and Community Development Program complements the Farm Credit System by providing funds for farmers and ranchers who are unable to secure credit from other sources.

Major Participants In The Secondary Market

1- Fannie Mae (formerly the Federal National Mortgage Association). 2- Freddie Mac (formerly the Federal Home Loan Mortgage Corporation). 3- Ginnie Mae (formerly the Government National Mortgage Association). 4- the Federal Home Loan Bank (FHLB), the Federal Agricultural Mortgage Corporation (Farmer Mac). 5- the many private real estate mortgage investment conduits (REMICs) that use mortgage-backed securities (MBSs) to collateralize their own securities.

Neighborhood Stabilization Program (NSP). (It was authorized by HUD As part of Housing and Economic Recovery Act of 2008 (HERA)

1- NSP1 : Designed to stabilize communities suffering from large numbers of abandoned homes and foreclosures by providing funds (Grants) to all states and selected local governments to acquire and redevelop those properties. 2- NSP2: Under the American Recovery and Reinvestment Act of 2009 (ARRA),to include nonprofit entities on a competitive basis for grants and to fund $50 million to national and local technical assistance providers. 3- NSP funding was included in the Dodd-Frank Act of 2010 to provide a third round of grants to states and local governments on a formula basis. 4-Another part of HERA was the Hope for Homeowners program, which provides an opportunity for borrowers having trouble making their mortgage payments to refinance with an FHA-insured mortgage. This program was in effect through September 30, 2011. -->

The Farm Credit System (FCS)

1- The FCS banks do not take deposits. 2-The funds used for lending are raised through the sale of bonds and notes in national capital markets. 3- The Federal Farm Credit Banks Funding Corporation manages the sale of system-wide debt securities. Purchasers of these securities are assured of timely payment of principal and interest by the Farm Credit System Insurance Corporation (FCSIC). Long-term mortgage loans : are generally made by Farm Credit Banks, Federal Land Bank Associations, or Federal Land Credit Associations. Short-term and intermediate-term loans: are usually made by Production Credit Associations. In some cases, these entities have combined to form Agriculture Credit Associations that provide both long- and short-term loans. The Farm Credit Administration (FCA) is an independent federal regulator responsible for examining and ensuring the soundness of all FCS institutions.

Electronic underwriting system : Freddie Mac provides its own automatic underwriting service, called Loan Prospector® to lenders, mortgage insurers, mortgage bankers and brokers, and others in the real estate market.

1- evaluates a borrower's creditworthiness (determining the level of underwriting and documentation necessary to determine the investment quality of a loan), such as: - the borrower's credit reputation and financial capacity. -the estimated value of the property. -The value of the property is derived from statistical models or from a traditional appraisal.

Test Unit#4

1-Ginnie Mae mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities, commonly called A.The answer is PASS-THROUGH CERTIFICATES. These are called pass-through certificates because the principal and interest payments are "passed through" to the investors. 2-Consumers can request one free credit report per year from each of the three major credit reporting agencies by submitting their request to: A/The answer is WWW.ANNUALCREDITREPORT.COM. Congress created this outlet to give consumers easier access to their credit information and to minimize the risk of inaccurate information being reported without the consumer's knowledge. 3-Which statement regarding Ginnie Mae is TRUE ? A/The answer is GINNIE MAE WORKS WITH BOTH ISSUERS AND INVESTORS OF MORTGAGE-BACKED SECURITIES. Ginnie Mae does not buy or sell loans or issue mortgage-backed securities but instead guarantees that investors will receive timely payments of principal and interest on MBSs backed by federally insured FHA or VA-guaranteed loans. 4-Eligible loans for Ginnie Mae mortgage-backed securities include all of the following EXCEPT: A/The answer is SALLIE MAE LOANS. Sallie Mae administers student loans. 5-Ginnie Mae mortgage-backed securities are fully modified pass-through securities guaranteed by: A/The answer is FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT. Many investors in the international market assumed that all mortgages sold on the secondary market were like Ginnie Mae mortgage-backed securities with the full faith and credit of the U.S. government, which meant if the loans were not performing, the government would intercede. This is one of the reasons the government had to intervene in the mortgage crisis. 6-Fannie Mae and Freddie Mac are both referred to as a government-sponsored enterprises because they retain the benefit of government sponsorship, which includes: A/The answer is A LINE OF CREDIT WITH THE U.S. TREASURY. Although the federal government never officially backed Fannie Mae and Freddie Mac's debt securities and mortgage-backed securities, the public conception was that the government would never allow them to default on their obligations. 7-When Fannie Mae was reorganized in 1954 to include financing by private investors, mortgage loans could be purchased at: A/ The answer is A DISCOUNT. In 1954, Fannie Mae was rechartered as a national secondary mortgage market clearinghouse to be financed by private capital. Fannie Mae was empowered to sell its mortgages as well as purchase new FHA and VA loans. Fannie Mae's purchases were no longer made at par but at whatever discounted price that would develop a reasonable rate of return. 8-The objective method used for assessing credit risk based on the automated underwriting process is: A/The answer is CREDIT SCORING. Credit scoring provides an objective method of assessing credit risk based on the statistical probability of repayment of debt. 9-The stated mission of Ginnie Mae is to expand affordable housing in America by: A/The answer is LINKING DOMESTIC AND GLOBAL CAPITAL MARKETS. Ginnie Mae does not buy or sell loans or issue mortgage-backed securities, but instead guarantees that investors will receive timely payments of principal and interest. This is appealing to investors in the domestic and global capital markets. 10-The BEST description of loans issued in excess of conforming loan limits is : A/The answer is JUMBO LOANS. Buyers may pay any price for a property, but loans that do not conform to the secondary market are typically held in a portfolio by the investor and generally have a different set of guidelines set by the lender/investor. 11-The agency established under the Federal Housing Reform Act of 2007 to ensure the financial soundness of Fannie Mae and Freddie Mac is the A/ The answer is FEDERAL HOUSING FINANCE AGENCY (FHFA). Despite the best efforts of the GSEs (Fannie Mae and Freddie Mac) to provide liquidity to the conforming mortgage market while raising and maintaining capital, their ability to fulfill their mission deteriorated, raising concern over both safety and soundness issues. 12-The FHFA is responsible for setting goals for the percentage of loans that should be made A/The answer is TO LOW- AND MODERATE-INCOME HOUSEHOLDS. One of the major purposes of the secondary market was to provide an outlet for loans to low- and moderate-income households. The FHFA, as conservator for the GSEs in the secondary market, is tasked with setting the percentage of the number of loans that should be made to low- and moderate-income households. 13-Which act allowed the creation of the Federal Housing Finance Agency (FHFA)? A/The answer is FEDERAL HOUSING REFORM ACT OF 2007. The purpose of this act was to reform specific government-sponsored enterprises so they would be regulated from an independent agency. 14-What aggressive action is the FHFA taking in an attempt to recover some of the losses to Fannie Mae's and Freddie Mac's portfolios? A/ answer is SUING FINANCIAL INSTITUTIONS. The FHFA is suing based on misrepresentation of the mortgage-backed securities sold to Fannie Mae and Freddie Mac. Several lawsuits are pending, including actions against 17 financial institutions 15-Fannie Mae's automated underwriting system that is most widely used in the mortgage industry is A/The answer is DESKTOP UNDERWRITER (DU). The automated underwriting system allows lenders to more quickly analyze the credit risk through Fannie Mae's sophisticated loan analysis system, which is periodically tweaked/updated to adjust guidelines and offer more products to more potential homebuyers. 16-The principal and interest payments on pass-through certificates are "passed through" to: A/The answer is INVESTORS. Investors benefit by receiving timely payments regardless whether the mortgage payment is made. This is one of the major benefits for the investors with Ginnie Mae mortgage-backed securities—a guaranteed return 17-When FHFA placed Fannie Mae and Freddie Mac into conservatorship in 2008, the Treasury was given unlimited capital to keep these entities solvent by: A/The answer is PURCHASING THEIR STOCK AND MORTGAGE-BACKED SECURITIES. By purchasing their stock and mortgage-backed securities, the Treasury provided these entities with the infusion of cash needed to keep them afloat and to build the confidence of investors to buy mortgage-backed securities. 18-.Freddie Mac was originally chartered to do which of the following? A/The answer is PROVIDE A SECONDARY MARKET FOR CONVENTIONAL LOANS. Freddie Mac was chartered to purchase conventional loans from savings associations and thrifts, but it now purchases both government and conventional loans 19-In addition to Fannie Mae and Freddie Mac, the Federal Housing Finance Agency was also made responsible for the: A/The answer is the FEDERAL HOME LOAN BANK. Since the Federal Home Loan Bank operated in the secondary market, it was included in the reorganization established under the Federal Housing Reform Act of 2007. 20-A jumbo loan is a mortgage loan that A/The answer is EXCEEDS THE CURRENT FANNIE MAE AND FREDDIE MAC MAXIMUM LOAN LIMIT. Maximum loan limits are established to set a standard for conforming loans so that they become homogeneous packages for securitization in the secondary market. 21-All of the following are related in some way to Ginnie Mae EXCEPT A/The answer is QUALIFIED RESIDENTIAL MORTGAGES. Platinum securities allow Ginnie Mae investors to combine Ginnie Mae mortgage-backed securities pools into a single security; collateralized mortgage obligations are mortgage-backed securities that create separate pools of pass-through rates for different classes of bondholders with varying maturities; and mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities and are commonly referred to as pass-through certificates. 22-Fannie Mae was established by congressional charter in 1938 as the Federal National Mortgage Association to expand the availability of mortgage money throughout the country by creating a secondary market to purchase A/The answer is FHA LOANS. Fannie Mae's scope of operations was broadened in 1944 to include purchasing VA-guaranteed loans 23-When Fannie Mae was reorganized, it became a separate privately owned corporation subject to A/The answer is FEDERAL CORPORATE INCOME TAX. When Fannie Mae was reorganized as a fully private corporation, Treasury-owned stock was redeemed and a like amount of over-the-counter common stock was offered to the public. Fannie Mae was exempt from state income taxes. 24-In addition to the authority to purchase FHA-insured and VA-guaranteed loans, the Emergency Home Finance Act of 1970 gave Fannie Mae the authority to purchase A/The answer is CONVENTIONAL LOANS. This change came two years after the 1968 reorganization, which allowed Fannie Mae to further expand its impact on the national real estate finance market. 25-Which of the following BEST describes the action taken by FHFA to stabilize Fannie Mae and Freddie Mac? A/The answer is FHFA PLACED FANNIE MAE AND FREDDIE MAC INTO CONSERVATORSHIP. Both Fannie Mae and Freddie Mac had purchased a large proportion of high-risk subprime loans and had 80 percent of the market share of all new loans originated (along with the FHLB). 26-Which of the following BEST describes why the public had the perception that the government would not allow Fannie Mae and Freddie Mac to default on their obligations A/The answer is FANNIE MAE AND FREDDIE MAC WERE ALLOWED TO CARRY A LARGE LINE OF CREDIT WITH THE U.S. TREASURY DEPARTMENT. The perception was that Fannie Mae and Freddie Mac had an unlimited line of credit with the U.S. Treasury and that the mortgage-backed securities were guaranteed by the government 27-Which agency sets the conforming loan limits A/The answer is FHFA. The FHFA sets conforming loan limits based on 115 percent of the FHA median house price for the area, except for high-cost areas. 28-Ginnie Mae allows investors to combine MBS pools into a single security and receive a single payment each month rather than separate payments from individual pools by the use of A/The answer is PLATINUM SECURITIES. The advantage of platinum securities is ease of use—investors receive a single payment by a specific time of the month depending on whether the MBS is in a Ginnie Mae I or Ginnie Mae II pool. Investors receive principal and interest payments regardless of whether the mortgage payment is made. 29-Which of the following is NOT one of the national credit repositories most use today to obtain credit scores of prospective borrowers? A/The answer is FICO. FICO is named after Fair, Isaac & Company, which developed the credit scoring system used with mortgages 30-Two sets of loan limits are provided for conforming loans depending on whether a market has been identified as a A/The answer is HIGH-COST AREA. Alaska, Hawaii, Guam, and the U.S. Virgin Islands are considered high-cost areas so loan limits are 50 percent higher. The loan limits are based on 115 percent of local median price established by HUD. 31-In 1954, Fannie Mae was rechartered as a national secondary mortgage market clearinghouse to be financed by A/The answer is PRIVATE CAPITAL. The agency was empowered to sell its mortgages as well as purchase new FHA and VA loans. Fannie Mae also created its own criteria for accepting mortgages that meet its standards for quality, yield, and risk 32-The largest percentage of a FICO credit score is determined based on A/The answer is PAYMENT HISTORY. The credit scoring assessment places a 35 percent assessment on payment history. Late payments, bankruptcies, and other items negatively impact the score, but on-time payments help the score. 33-Fannie Mae and Freddie Mac are able to replenish their own funds, enabling them to purchase loans from primary lenders by A/The answer is SELLING MORTGAGE-BACKED SECURITIES. Mortgage loans purchased by Fannie Mae and Freddie Mac from mortgage originators, savings institutions, credit unions, and commercial banks are generally packaged into mortgage-backed securities and sold in international capital markets 34-The Government National Mortgage Corporation, known as Ginnie Mae, was created as a government-owned corporation under the direction of A/The answer is DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD). In its earliest days, housing finance was a fragmented, inefficient, and nonliquid market, with mortgage rates varying considerably from region to region, and some locations having practically no funds available. This was a direct consequence of the near impossibility of selling individual mortgages on the secondary market. The lack of available, consistently priced capital put a ceiling on the number of new mortgages that could be issued. Ginnie Mae solved this problem and revolutionized the American housing industry in 1970 by pioneering the issuance of mortgage-backed securities 35-Loans that do not meet the conforming guidelines established by Fannie Mae or Freddie Mac, including maximum loan amount and down payment requirements, are called A/The answer is NONCONFORMING LOANS. Buyers may pay any price for a property, but a standard for loans sold in the secondary market makes it easier to securitize them 36-The Housing and Urban Development Act of 1968 changed Fannie Mae to allow it to be reorganized as A/The answer is A FULLY PRIVATE CORPORATION. Since Fannie Mae had been so successful in preceding years as a quasi-public and profitable corporation, it was successful in presenting the rationale for reorganization as a fully private corporation.

Empowerment to Sell Mortgages

1-In 1954Fannie Mae was rechartered as a national secondary mortgage market clearinghouse to be financed by private capital. 2- Fannie Mae was empowered to sell its mortgages as well as purchase new FHA and VA loans. 3- Fannie Mae's purchases were no longer made at par but at whatever discounted price would develop a reasonable rate of return. 4- This profit attitude was consistent with the reorganizational goal of private ownership. 5- Fannie Mae did not have to purchase every mortgage submitted to it, only those mortgages that met its standards for marketability. In other words, Fannie Mae imposed its own criteria for acceptance of mortgages submitted for sale, which sometimes created animosity among mortgage originators. It was argued that one federal agency should accept another's standards. Fannie Mae countered with the argument that the FHA and VA standards for credit and appraisal were minimum standards and insisted that all mortgages submitted to Fannie Mae would have to meet its own standards for quality, yield, and risk. The quality and level of stability of guaranteed and insured loans were raised in order to meet these new requirements.

Quiz UNIT4:

1-Junior real estate loans are generally sold in the secondary market at a premium. A/ The statement is FALSE. Mortgage finance companies purchase existing second mortgages from their owners, but usually at a discount to enhance the yield. 2-Freddie Mac issues loans to applicants turned down by Fannie Mae. A/ The statement is FALSE. Freddie Mac was organized specifically to provide a secondary mortgage market for the U.S. savings associations and thrifts that are members of the Federal Home Loan Bank System. 3-Real Estate Mortgage Investment Conduits deal in pools of loans divided into classes called tranches. A/ The statement is TRUE. REMIC is basically a conduit, holding fixed pools of mortgages that back securities collateralized by the mortgage cash flows. The REMIC structure offers issuers a flexible tool with which to design classes—tranches—of ownership interests to meet investor needs and respond to market. 4-Farmer Mac underwrites, purchases, and sells farm and ranch loans. A/ The statement is TRUE. Its mission is to improve the availability of long-term credit at stable interest rates to America's farmers, ranchers, and rural homeowners, businesses, and communities. This mission is accomplished by purchasing qualified loans from agricultural mortgage lenders, thus providing. 5-Fannie Mae is best described today as a government-sponsored entity. A/ The statement is TRUE. Fannie Mae became a separate, privately-owned corporation subject to federal corporate income tax, and exempt from state income taxes. It retains the benefit of government "sponsorship," which includes a line of credit with the U.S. Treasury and is referred to as a government. 6-The scores on the FICO test assign relative risk rankings to applicants based on statistical analyses of their credit histories. A/The statement is TRUE. Credit scores are based on factors such as how you pay your bills, how much outstanding debt you have, what type of credit and how long you have had established credit, and how many times you have had inquiries relative to extending credit expressed as a percentage. 7-Borrowers with less than perfect credit or limited funds for down payment are usually forced into lower-cost financing programs. A/ The statement is FALSE. They are forced into higher-cost financing programs. 8-Nonconforming loans meet Fannie Mae's qualifying guidelines. A/ The statement is FALSE. The terms conforming and nonconforming are used by lenders to define loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines. Loans that do not meet the conforming guidelines, including maximum loan amount and down payment requirements, are called nonconforming. 9-Ginnie Mae is responsible for providing financing for special assistance programs, urban renewal projects and housing for the elderly. A/ The statement is TRUE. Created as a wholly owned government corporation in 1968, Ginnie Mae is under the jurisdiction of HUD. It finances special assistance programs and participates in the secondary market through its mortgage-backed securities pools. 10-Fannie Mae's automated underwriting system allows borrowers to qualify for loans online. A/ The statement is TRUE. Lenders access Fannie Mae's sophisticated loan analysis system through the software they offer their customers. Desktop Underwriter is the leading automated underwriting system in the industry and is regularly updated to offer more products to more potential homebuyers.

Urban Renewal

1-Sponsored by Home Urban Development (HUD) in urban projects renewal neighborhoods or properties. 2. Plan has to be sent to HUD to approval and sponsorship. 3. makes loans and grants to owners and tenants in depressed areas for rehabilitating their properties. Grants are also available to demolish structures unfit for habitation.

Quiz 1-10

1-The Farm Credit System serves the credit needs of farmers, ranchers and rural homeowners. True: The statement is TRUE. The Farm Credit System (FCS) was created by Congress in 1916 to provide American agriculture with a source of sound, dependable credit at competitive rates of interest 2- The Interstate Land Sales Full Disclosure Act would apply to a subdivision of 25 lots sold interstate commerce. TRUE: The statement is TRUE. The act is designed to reduce fraud in the sales of land by developers and the law requires that anyone selling or leasing 25 or more lots of unimproved land must comply. 3-Community Industrial Development Agencies are funded by issuing revenue bonds. TRUE: These activities are funded by industrial revenue bonds (IRBs) backed by a state's bonding credit. Some funds are also raised through voluntary contributions from citizens interested in expanding the economic base of their community. 4- The Equal Credit Opportunity Act requires a lender to extend credit into any community in which the bank provides services FALSE. The Community Reinvestment Act requires a lender to extend credit into any community in which the bank provides services 5-The USDA Rural Development Program forges new partnerships with rural communities to reverse the downward spiral of rural job losses, out-migration, and diminishing services. TRUE: The Interstate Land Sales Full Disclosure Act, passed by Congress in 1968, established the informational criteria for marketing residential land to potential buyers. Designed to reduce fraud in the sales of land by developers, the law requires that anyone selling or leasing 25 or more lots of unimproved land as part of a common plan in interstate commerce must comply with the act's provisions. 6- HUD is responsible for the FHA, GNMA, Housing Choice Voucher Program, Office of Native American Programs (ONAP), and Fair Housing. TRUE. HUD is the federal agency responsible for national policy and programs that address America's housing needs, improve and develop U.S. communities, and enforce fair housing laws. 7- The Equal Credit Opportunity Act prohibits discrimination in real estate sales. FALSE. It prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or dependency on public assistance 8- The Interstate Land Sales Full Disclosure Act is designed to reduce fraud in land sale TRUE. The Interstate Land Sales Full Disclosure Act, passed by Congress in 1968, established the informational criteria for marketing residential land to potential buyers. Designed to reduce fraud in the sales of land by developers, the law requires that anyone selling or leasing 25 or more lots of unimproved land as part of a common plan in interstate commerce must comply with the act's provisions 9- HUD is the federal agency responsible for national policy and programs that address this nation's housing needs. TRUE. HUD is the federal agency responsible for national policy and programs that address America's housing needs, improve and develop U.S. communities, and enforce fair housing laws. 10- The Real Estate Settlement Procedures Act prohibits discriminating in real estate finance. FALSE. It provides closing cost information.

Disclosures Before Settlement/Closing HUD-1 Settlement Statement------------------------>

Affiliated Business Arrangement (AFBA) Disclosure is required whenever a settlement service provider refers the borrower to a firm with which the servicer has any connection, such as common ownership. 1-preliminary copy is required if the borrower requests it 24 hours prior to closing, estimates all settlement charges that must be paid by the participants. 2- The borrower must also receive a copy of the Truth-in-Lending Disclosure Statement prior to closing that discloses the annual percentage rate and total costs of credit involved in the transaction.

(Ginnie Mae) Mortgage-Backed Securities (MBS's) called: pass-through certificates

Are pools of mortgages used as collateral for the issuance of securities, as the principal and interest payments are 'passed-through' to the investor. There are two types of Ginnie Mae MBSs: 1- The Ginnie Mae I MBS: - requires that all mortgages in the pool be the same type (e.g., single-family). - the mortgages remain insured or guaranteed by FHA, VA, RHS, or ONAP with a minimum pool size of $1 million. -Payment is made on the 15th of the month. 2-The Ginnie Mae II MBS: -provides for multiple-issue pools Higher servicing fees are allowed. - the minimum pool size is $250,000 for multi-lender pools. - $1 million for single-lender pools. - Payment is made on the 20th of the month to allow time for payments to be consolidated by a central paying agent.

Disclosure at the Time of a Loan Application

At the beginning of the mortgage loan process, the lender must provide the borrower the following three items: • A Special Information Booklet containing information on real estate settlement services. • Within three business days, a Good Faith Estimate (GFE) of settlement costs list. . The new GFE gives specific details on all loan terms, closing costs and related fees, giving the borrowers a better opportunity to compare different loan products. The new GFE has zero tolerance for any change to significant aspects of the estimate.

Conforming and Nonconforming Loans

CONFORMING LOANS: used by lenders to define loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines( including maximum loan amount and down payment requirements). NONCONFORMING LOANS: Loans that do not meet the conforming guidelines (amount and down payment req). JUMBO LOANS: Loans that go beyond the conforming loan limits. Usually, the buyer has to make up the difference in cash, to meet the standards in the market. May be held by lenders for their own investment portfolios or sold to the secondary market.

Underwriting Standards (Lenders wishing to sell their conventional loans to Fannie Mae must subscribe to its guidelines, which are revised from time to time. Fannie Mae provides two versions of its automated underwriting system)

Desktop Underwriter® (DU): for lender servicers. Desktop Originator® (DO): for independent mortgage broker-agents. * Lenders access Fannie Mae's loan analysis system through the software they offer customers. Selling Guides are available at www.efanniemae.com, along with a full guide to underwriting, which includes specific details on reporting borrower income and assets, debts and other liabilities, maximum interest rates, and loan amounts allowed for different types of loan products. After all the borrower information is submitted to DU, a response is received with regard to both credit risk and eligibility for the loan. Ideally, the response will be "approved/eligible." -The seller can contribute up to 3 percent of the sales price toward borrower's closing costs with a 5 percent down payment, and up to 6 percent with a 10 percent down payment. -Specific ratios for the total amount allowed for housing expenses (principle, interest, real estate taxes, property insurance, and any homeowner association or condominium fees) and for total monthly debt vary according to the type of loan product, but a conservative estimate would be 28 percent of gross monthly income (GMI) for housing and 36 percent of GMI for total debt, including housing expenses. • A minimum down payment of 5 percent is preferred, but there are still some loan products that only require a 3 percent down payment. -Effective in 2011, a prospective borrower who has experienced a prior foreclosure may have to wait seven years before being eligible for a Fannie Mae loan. -If the home was sold as a short sale where the bank accepted less than the total amount due, the waiting period is a minimum of two years. - monthly debt like a car payment today, it is counted as ongoing debt payments.

Fair Housing and Equal Opportunity (FHEO); It is an The HUD Office

Enforces the Fair Housing Act (Title VIII of the Civil Rights Act of 1968 prohibiting discrimination in the sale, rental, and financing of dwellings based on race, color, national origin, religion, sex, familial status, and disability) and other civil rights laws, including: • Title VI of the Civil Rights Act of 1964, • Section 109 of the Housing and Community Development Act of 1974, • Section 504 of the Rehabilitation Act of 1973, • Title II of the Americans with Disabilities Act of 1990, • The Age Discrimination Act of 1975, • Title IX of the Education Amendments Act of 1972, and • The Architectural Barriers Act of 1968.

Establishing Nontraditional Credit

Fair Isaac Credit Services, Inc., offers a FICO Expansion Score to assess credit risk. The secondary market has responded to this need by establishing guidelines for a Non-Traditional Mortgage Credit Report (NTMCR). Fannie Mae uses a three-tier approach for those unable to obtain a traditional credit score: Tier I : credit includes rent, utilities, and telecommunication payments. Tier II: includes direct insurance payments. Tier III: includes payments to local stores for durable goods, medical bill payments, and payments for school tuition or childcare. *The goal is to obtain a 12-month history from four sources, preferably from Tier I. Freddie Mac has similar guidelines but includes union dues payments and regular payments to a savings or stock purchase plan.

Fannie Mae

Fannie Mae was established by congressional charter in 1938 as the Federal National Mortgage Association (FNMA) to expand the flow of available mortgage money throughout the country by creating a secondary market for the purchase of FHA-insured mortgages. The scope of operations was broadened in 1944 to include purchasing VA-guaranteed loans. The purchase of the FHA and VA loans was made at par

Ginnie Mae Real Estate Mortgage investment conduits (REMICs)

Ginnie Mae administers a real estate mortgage investment conduits (REMICs) program. REMICs: - direct principal and interest payments from underlying mortgage-backed securities to classes with different principal balances, interest rates, average lives, prepayment characteristics, and final maturities. -allow investors with different investment horizons - risk-reward preferences. - asset-liability management requirements to purchase MBSs tailored to their needs. Unlike traditional pass-throughs, the principal and interest payments in REMICs are not passed through to investors pro rata; instead: - they are divided into varying payment streams to create classes with different expected maturities, differing levels of seniority, or subordination or other characteristics. - The assets underlying REMIC securities can be either other MBSs or whole mortgage loans.

Public Housing (Native American Housing)(ONAP)

HUD promotes providing decent, safe, and affordable housing for lower-income Native American, Alaska Native, and Native Hawaiian families. ONAP works closely with tribes and tribally designated housing entities to administer their own programs

Disclosures Under RESPA

In order to protect participants in a real estate transaction, RESPA requires all service costs to be disclosed at various times during the process. Disclosures must be made during the time of a loan application, before settlement/closing, at settlement, and after settlement

Topic II: Significant Federal Legislation

In the past, real estate transactions were virtually unregulated, and each party was assumed to be knowledgeable about the facts and conditions surrounding the sale and financing of a property. As the marketplace evolved and became more complex, it also became clear that many purchasers or sellers were not well informed. As a result, some significant federal legislation was passed that has become standard practice in every real estate transaction.

Credit Scoring

Included in the automated underwriting process is the applicant's credit score, an objective method of assessing credit risk based on the statistical probability of repayment of the debt. There will be a report based on the three credit bureaus there the numeric score is derived on FICO scoring system.

primary lenders or financial intermediaries

Institutional Lenders Noninstitutional Lenders Commercial banks Life insurance companies Mutual savings banks Pension and retirement programs Credit unions Savings associations/thrifts Mortgage brokers Real estate bonds Mortgage bankers Private lenders Real estate trusts Foreign lenders

The Federal Equal Credit Opportunity Act (ECOA)

It is Title VII of the Consumer Protection Act. It prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or dependency on public assistance. The ECOA also prohibits lenders from discriminating against credit applicants who exercise their rights under the truth-in-lending laws. In addition, lenders and other creditors must inform all rejected applicants in writing of the principal reasons why credit was denied or terminated. The focus of the ECOA is to ensure that all qualified persons have equal access to credit. Both the Justice Department and HUD are charged with protecting borrowers from discrimination in lending practices under the fair housing laws and ECOA

The Real Estate Settlement Procedures Act (RESPA)

It is administered and enforced by the Consumer Financial Protection Bureau (CFPB). RESPA is designed to protect the participants in a real estate transaction by providing closing cost information so they better understand the settlement procedures. RESPA covers the sale of residential properties and the acquisition of mortgage loans, including home equity loans, second mortgages, and refinancing loans on residential properties.

The Federal Housing Finance Agency (FHFA)

It was established under the Federal Housing Reform Act of 2007 as an independent agency to regulate Fannie Mae, Freddie Mac, and the Federal Home Loan Bank (FHLB)

Unit 4: The Secondary Mortgage Market FANNIE MAE

KEYWORDS: administered price system • collateralized mortgage obligation (CMO) • conforming loan • Desktop Originator® (DO) • Desktop Underwriter® (DU) • Fannie Mae • Federal Home Loan Bank (FHLB) • Federal Housing Finance Agency (FHFA) • Freddie Mac • Ginnie Mae • government-sponsored enterprise (GSE) • jumbo loans • Loan Prospector® • nonconforming loan • par • participation certificates (PCs) • pass-through certificates • premium • primary lender • qualified residential mortgage (QRM) • real estate mortgage investment conduits (REMICs)

Unit 5: Sources of Funds: Institutional, Non-Institutional, and Other Lenders

Key Terms • bearer bonds • correspondents • coupon bonds • debentures • demand deposits • fiduciary responsibility • financial intermediaries • general obligation bonds • industrial development bonds • industrial revenue bonds (IRBs) • interim financing • junior financing • mortgage bankers • mortgage brokers • mortgage revenue bonds • municipal bonds • origination fee • participation financing • real estate investment trust (REIT) • real estate mortgage trust (REMT) • registered bonds • revenue bonds • Secure and Fair Enforcement Mortgage Licensing Act (SAFE Act) • thrifts • warehouse of funds • zero-coupon bonds

Summary (2 of 3)

Life insurance companies accumulate large reservoirs of monies to be held for long periods of time. Their real estate investments complement this profile and include the larger mortgages on major national commercial and industrial real estate developments. Although life insurance companies invest only a portion of their total assets in real estate finance, the huge dollar amounts of these assets make their contribution to real estate financing and the success of large-scale construction projects significant. Pension and retirement funds have substantially increased their assets in recent years and have the potential to become a major source of mortgage lending. In the past, however, pension funds have mostly been active in realty finance because most of their funds have been invested in government and corporate securities. Another type of financial intermediary that participates to an increasing degree in mortgage lending is the credit union. Although involved primarily in financing members' personal property purchases, many credit unions are now financing equity loans and first mortgages. Mortgage brokers act as catalysts in the process of matching borrowers and lenders, a service for which they earn a finder's fee. Fees on residential loans are related to an origination fee and compensation for the servicing of the loan. Fees on commercial loans are related to the time and effort expended in the loan's successful presentation. Once a loan has been finalized, the broker's responsibilities are usually completed.

Community Redevelopment Agencies

Local governments may establish community redevelopment agencies for expansion of the supply of low-income housing. These agencies are supervised by city council members and can acquire property by eminent domain. Any building program must agree to allocate 30 percent of the rental units for low-income tenants before it can be approved. Replacement housing must be provided within or outside the redevelopment area for every person displaced by the project.

Summary (3 of 3)

Mortgage bankers, on the other hand, not only generate new mortgage loans between the major fiduciary lenders and individual borrowers but continue to function as intermediaries. They collect mortgage payments, inspect the condition of collateral, counsel delinquent borrowers, and foreclose when necessary. In addition, mortgage bankers often invest their own funds or borrow money from their banks to finance site acquisitions, land improvements, construction costs, and permanent mortgages in order to complete a full development program. The real estate trusts, much like the stock market's mutual funds, are depositories for small investors who pool their monies for greater investment flexibility. The investors take a passive role in management and allow the trust's directors to decide on the investment policy. Some real estate trusts are involved exclusively in equity holdings. These equity trusts are described as real estate investment trusts (REITs), and they purchase property for its income and potential growth in value. Other real estate trusts, defined as real estate mortgage trusts (REMTs), invest primarily in real estate mortgage loans. Some real estate trusts are hybrids that combine equity participation and mortgage investments. The issue and sale of real estate bonds is an additional source of funds for mortgage lending. Corporations issue bonds to secure money for plant expansion, equipment purchases, and operational expenses. Various governmental bodies may issue bonds to raise funds for improvements, such as schools, parks, streets, industrial developments, bridges, hospitals, and sewage plants. The administration of funds raised by a bond sale is left in the hands of a trustee, who supervises the collection of payments from the borrower-issuer and the distribution of dividends to the investors/purchasers. Private lenders often provide the funds required to close many real estate transactions. Without their ability to make independent decisions and take extra risks, many real estate transactions would be impossible to complete. Foreign investment into the general economy has been increasing, especially from China. These investments are directly impacting real estate development in New York City.

the Federal Home Loan Bank (FHLB) **(MAIN FUNCTION)

Provide its members a national market for their securities. The FHLB purchases loans from its member banks and provides strong competition in the secondary market. *As a government-sponsored enterprise (GSE), the FHLB is now regulated by the Federal Housing Finance Agency (FHFA).

Truth in Lending Act (TILA)—Regulation Z

TILA disclosures that relate to mortgage lending are listed in the following: • The annual percentage rate (APR) discloses the true yield achieved by the lender through a combination of the stated rate of interest, any discount points, and additional lender fees. The APR must be disclosed to the consumer prior to making the loan and in all advertising. • Regulation Z requires full disclosure of all elements of financing. Disclosure of any one of the "trigger" terms—rate of interest, number of payments, term of the loan, amount of monthly payment, down payment amount, or percentage—requires full disclosure of all of the terms. • Adjustable-rate mortgages must include disclosure of all potential rate increases. TILA disclosures are always required for credit extended for the purchase of real property. If credit is to be extended for the purchase of personal property in excess of $25,000, or if repayment will be made in more than four installments.

FEDERAL HOME LOAN BANK (FHLB)

The 12 banks of the Federal Home Loan Bank (FHLB) system (referred to as FHLBanks) are owned by over 8,100 regulated financial institutions from all over the United States. 1-Equity in the FHLBanks is held by the owner-members and is not publicly traded. 2-FHLBanks are self-capitalizing. 3- Exempt from state and local income taxes, but receive no direct taxpayer assistance. 4-The mission is to provide cost-effective funding to the members for use: in housing, community,and economic development. 5- to provide regional affordable housing programs. 6- to support housing finance through advances and mortgage programs. 7- to serve as a reliable source of liquidity for its membership. 8- major function of the FHLB is to

Federal Agriculture Mortgage Corporation (Farmer Mac)

The Federal Agriculture Mortgage Corporation, known as Farmer Mac. 1- was created by Congress to provide a secondary market for agricultural and rural housing mortgage loans. 2- In the Farmer Mac I Program, Farmer Mac purchases qualified loans from agricultural mortgage lenders, thereby replenishing the lenders' source of funds to make new loans. ( The loans are then packaged and sold as securities. In the Farmer Mac II Program, Farmer Mac purchases guaranteed portions of USDA loans). 3-purchases qualified rural utility loans or guarantees payment of interest and principal of securities backed by pools of such loans. 4- both the Farm Credit System and Farmer Mac were created and chartered by Congress, neither is funded by taxpayers. See www.farmermac.com for more information on the program.

Fannie Mae (Reorganization Under HUD)

The Housing and Urban Development Act of 1968 changed the Fannie Mae organization once again: -Fannie Mae was reorganized as a fully private corporation. -All Treasury-owned stock was redeemed, and common stock was offered to the general public. -Fannie Mae became a separate, privately owned corporation subject to federal corporate income tax, and exempt from state income taxes. It retained the benefit of government sponsorship, which includes a line of credit with the U.S. Treasury, and was called a GSE. -The 1968 reorganization was meant to enhance Fannie Mae's ability to participate in the secondary market and to encourage new money to enter the real estate mortgage market. -Fannie Mae could now purchase mortgages at a premium (in excess of par) and was allowed to expand its own borrowing ability by floating securities backed by specific pools of mortgages in its portfolio. -The Emergency Home Finance Act of 1970 gave Fannie Mae the additional authority to purchase mortgages other than FHA-insured or VA-guaranteed loans, mostly conventional loans. This further expanded Fannie Mae's impact on national real estate finance.

The U.S. Department of Agriculture Rural and Community Development Program (USDA Rural Development)

The activities of the Farm Credit System are complemented by the USDA. This governmental unit was created in 1994 to combine the Farmers Home Administration (FmHA), the Rural Development Administration, the Rural Electrification Administration, and the Agricultural Cooperative Service

Summary (1 of 3)

The major financial intermediaries are commercial banks, mutual savings banks, savings associations or thrifts, life insurance companies, pension and retirement funds, and credit unions. They usually display conservative investment attitudes compatible with their roles as guardians and protectors of their depositors' and premium payers' money. Commercial banks have traditionally participated in real estate finance mainly as short-term lenders, preferring to maintain their liquidity while at the same time maximizing their earnings by trading in commercial paper. Through their mortgage loan departments, however, commercial banks have become very active in the home mortgage loan market, in addition to constrinvestment trusts, commercial banks participate to some degree in long-term real estate investments. Mutual savings banks are designed to participate extensively in local realty mortgage markets. Because savings by definition have a long-term nature, these institutions are able to make long-term loans, predominantly in real estate finance. Savings banks engage actively in owner-occupied single-family residential mortgages. Some savings banks also participate in regional and national mortgage markets by buying and selling blocks of securities from and to the secondary market. uction loans, home improvement loans, and manufactured home mortgages—all relatively short-term investments. In addition, through their trust departments, mortgage banking facilities, and ownership of real estate

Topic III: State And Local Programs (1 of 5)

These agencies are grouped into categories—one to assist local communities in attracting new industry and another to improve the housing of its citizens. Another source of funding for state and local redevelopment programs are the Neighborhood Stabilization Program grants

Federal Agricultural Mortgage Corporation (FAMC). Known as : FARMER MAC

This program was originally created by Congress with the Agricultural Credit Act of 1987 as the Federal Agricultural Mortgage Corporation (FAMC).

Administered Price System: (In the past, Fannie Mae's mortgage purchasing procedures had been handled under a free-market-system auction. Lenders offered to sell Fannie Mae their loans at acceptable discounts, with Fannie Mae buying the lowest-priced loans—those with the deepest discounts).

This system was replaced by a required yields daily in accordance with market factors and its financial needs. So, before lender places an order to sale loans the lender retains the option to deliver the loans or not, depending on the price at time of delivery.

Sumary Unit 3

This unit examined the Department of Housing and Urban Development (HUD), which participates actively in real estate finance. In addition to supporting the FHA and Ginnie Mae, HUD regulates interstate land sales, promotes various urban renewal projects, area rehabilitation ventures, and open-space developments. Among its other socially-oriented housing activities are public housing programs, cooperative housing for low-income persons, mortgage interest subsidies, relocation aid, disaster area construction, and isolated area housing. Federal legislation regulating real estate finance was examined, including the Equal Credit Opportunity Act (ECOA), the Community Reinvestment Act (CRA), the Real Estate Settlement Procedures Act (RESPA), and the Truth in Lending Act (TILA). ECOA prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or dependency on public assistance. The Community Reinvestment Act requires all federally regulated financial institutions to expand their responsibilities to meet the needs of all citizens of a community. RESPA is designed to prevent abuses of buyers and sellers by providing estimated costs of a real estate transaction before closing to avoid any last-minute shocks, and TILA requires a full disclosure of all costs of credit. Most states have established financing agencies of their own to help develop industry in various communities and provide the means to improve the housing requirements of their citizens. These agencies frequently use bond issues to raise funds for their programs, some of which are repaid with tax increments. The last section of this unit reviewed the Farm Credit System, which originated under the federal Farm Loan Act of 1916 and serves the particular financial needs of farmers, ranchers, producers and harvesters of aquatic products, rural homeowners, and selected farm-related businesses. Complementing the various agencies of the Farm Credit System, the U.S. Department of Agriculture Rural and Community Development makes loans to farmers and ranchers unable to secure credit from other sources. 1887400

Summary I

This unit examined the roles of the various major agencies involved in the secondary mortgage market for real estate finance, including Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Bank. Based on electronic procedures that are uniform in the evaluation of credit and collateral, a huge market for trading in securities has evolved. Local originators of loans sell them to secondary investors thereby freeing local capital for making more loans. In addition to FHA and VA loans, the secondary mortgage market has expanded to include conventional loans on homes, condominiums, multifamily projects, and commercial developments. Operating as warehouses of money, Fannie Mae and Freddie Mac effectively redistribute funds from money-rich areas to money-poor areas. Fannie Mae was organized in 1938 as a federal agency involved primarily in purchasing and managing FHA-insured loans. The association evolved into a private, profit-making corporation dealing in every type of residential real estate mortgage loan.

Summary II

To raise funds for the purchase of these mortgages, Fannie Mae charges fees and has the authority to borrow from the U.S. Treasury. Fannie Mae markets its own securities. Freddie Mac was created in 1970 to provide a secondary mortgage market for the nation's savings associations. Through the years it evolved into a private corporation, buying and selling all types of loans and adding to the effectiveness of the secondary market. Created as a wholly owned government corporation in 1968, Ginnie Mae is under the jurisdiction of HUD. It finances special assistance programs and participates in the secondary market through its guarantee of FHA and VA mortgage-backed securities. In addition to the three major participants in the secondary market, other public and private agencies and companies have begun developing under the concept of collateralization. This concept pools existing mortgages together in homogeneous packages that are then pledged as collateral to issue mortgage-backed securities (MBSs). These MBSs are, in turn, sold to investors. Additional secondary market participants are the Federal Home Loan Bank, Farmer Mac (which deals in farm and ranch loans), and the various real estate mortgage investment conduits (REMICs). 1887443

demand deposits

checking accounts, for their basic supply of funds.

Industrial Development Agencies

communities have organized industrial development agencies empowered to purchase and improve land for industrial and office parks. These activities are funded by industrial revenue bonds (IRBs) backed by a state's bonding credit

Entitlement communities

defined as metropolitan cities with populations of at least 50,000 and urban counties with populations of at least 200,000. States distribute to non-entitlement communities. The amount of each grant is determined based on community needs, such as poverty level, population data, age, and density of housing. Seventy percent of CDBG funds must benefit low-income and moderate-income families.

Commercial Banks

designed to be safe depositories and lenders for a multitude of commercial banking activities. Although they have other sources of capital, including savings, loans from other banks, and the equity invested by their owners, commercial banks rely mainly on demand deposits, better known as checking accounts, for their basic supply of funds. -designed primarily to make loans to businesses to finance their operations and inventories -they often diversify into loans on real estate. - real estate-related loan activities include construction loans, also known as interim financing, home improvement loans, and manufactured housing loans. -These longer manufactured home loans usually include insurance from the Federal Housing Administration (FHA) or guarantees from the Department of Veterans Affairs (VA). -many commercial bank mortgage loan departments originate and service loans for other lenders. Acting in the role of mortgage bankers, commercial banks represent life insurance companies, real estate investment or mortgage trusts, or even other commercial banks seeking loans in a specific communit

Structure for the secondary mortgage market

original two purposes: 1-Help ensure a steady supply of financing for residential mortgages. 2• Provide subsidized assistance for mortgages on housing for low- and moderate-income families

The Community Reinvestment Act (CRA)

passed by Congress in 1977, ensures that financial institutions pursue their responsibilities to meet both the deposit and the credit needs of members of the communities in which they are chartered.

Violations of RESPA are subject to severe penalties such as triple damages, fines, and even imprisonment. RESPA covers almost every service provider involved in the purchase of a home including:

real estate brokers and agents, • mortgage brokers and mortgage bankers, • title companies and title agents, • home warranty companies, • hazard insurance agents, • appraisers, • flood insurers and tax service suppliers, and • home and pest inspectors. Real estate brokers or agents are prohibited from receiving anything "of value" for referring business to another real estate service provider or from splitting fees received for settlement services unless the fee is paid for an actual service. Exemptions to the referral restrictions are: (1) promotional and educational activities. (2) payment for goods provided or service performed. (3) affiliated business arrangements.

interim financing

real estate-related loan activities include construction loans. These loans are all relatively short term and match the bank's demand deposit profile. -Construction loans run from three months to three years, depending on the size of the project. - Home improvement loans may run up to five years and include financing the cost of additions, modernization, swimming pool construction, or other similar improvements. -Manufactured home loans range from ten years to a longer term, usually depending on how permanently the home is attached to the property. These longer manufactured home loans usually include insurance from the Federal Housing Administration (FHA) or guarantees from the Department of Veterans Affairs (VA).

Savings Associations/thrifts

specific purpose of providing loans to their depositors for housing construction. -are organized as either stock or mutual companies. -Many mutual associations have converted to stock companies to attract more capital. - Regulated by Federal Home Loan Bank System (FHLB) founded in 1932. -The FHLB operates the 12 district banks that are now regulated by the Federal Housing Finance Agency. -The member savings associations were chartered and regulated by the Office of Thrift Supervision (OTS), which now falls under the Comptroller of the Currency (OCC). The accounts are insured up to $250,000 per title per account by the Federal Deposit Insurance Corporation (FDIC). *All savings banks must be chartered, either by the OCC or by the state in which they are located. All federally chartered savings banks are required to participate in the FDIC insurance program.

HUD's Strategic Framework for 2010-2015 emphasizes the following strategic goals:

• Strengthen the nation's housing market to bolster the economy and protect consumers. • Meet the need for quality affordable rental homes. • Use housing as a platform for improving quality of life • Build inclusive and sustainable communities free from discrimination • Transform the way HUD does business . HUD has been charged with enforcement of the Real Estate Settlement Procedures Act (RESPA) since its inception in 1974 and takes an active role in the enforcement of the RESPA regulations.