Residential Financing

1
Residential Financing

• Jim Burton, Ph.D.
• Marketing Real Estate
• College of Business

2
Overview

• Mortgage Concept/Practice
• The Foreclosure Process
• U.S. Finance System
• Mortgage Lenders
• Loan Application
• Duties of the Originator
• Mortgage Underwriting

3
Mortgage Concept/Practice

• Unsecured/secured loans
• Mortgage note security deed
• Mortgagee/Mortgagor
• Note - promise to pay
• Security Deed - pledge of property as collateral

4
Promissory Note

• Loan Amount
• Interest Rate, Term
• Monthly payment
• Prepayment clause
• Acceleration clause
• Due-on-sale clause

5
The Foreclosure Process

• Taking property if default
• Judicial Foreclosure - court
• Nonjudicial Foreclosure -lender
• Strict foreclosure - immediate
• Deficiency judgement

6
U.S. Finance System

• Primary lenders
• Secondary mortgage market
• FHA-insured loan
• VA guaranteed loan
• Private mortgage insurance
• Conventional loan

7
Secondary Market

• Fannie Mae (FNMA) - buys FHA, VA, PMI loans.
• Ginnie Mae (GNMA) - provides subsidized loans
  guarantees MBS securities.
• Freddie Mac (FHLMC) - buys conventional loans.

8
Primary Lenders

• Savings Institutions 12
• Life Insurance Cos. 4
• Commercial Banks 23
• Federal Agencies 6
• Mortgage Pools 41
• Individuals 14

9
Mortgage Application

• Employment Income
• Assets Debt
• Credit report
• Property/Appraisal
• Source of down
• Monthly housing costs- P I, taxes insurance

10
Duties of Originator

• Equal Credit Opportunity Act - no discrimination.
• Regulation Z - APR.
• RESPA - closing costs, form closing statement,
  monthly escrows.

11
Mortgage Underwriting

• Applicants credit
• Sources of income
• Debts
• Monthly housing costs
• Property/appraisal
• Mortgage debt ratio 28
• Total debt ratio 36

12
Loan Calculations

• Payment
• Balance
• Yield (APR)
• Discount Points
• Prepayment penalty
• Early prepayment