Chapter 11

Chapter 11 - Chapter 11 Residential Mortgage Types And...

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Chapter 11 Residential Mortgage Types And Borrower Decisions 2/21/08 Primary Mortgage Market - the market where loans are originated, i.e. where loans are made by lenders to borrowers; o Numerous institutions supply money to borrowers in the primary mortgage market, including savings and loan associations, commercial banks, credit unions, and mortgage banking companies. Secondary Mortgage Market - the market where loans are sold. The secondary market provides the majority of the funds for the primary market. o The largest purchasers of residential mortgages in the secondary mortgage market are Fannie Mae and Freddie Mac. These government-sponsored enterprises (GSEs) were created by acts of Congress to promote an active secondary market for home mortgages by purchasing mortgages from local originators. Conventional Loan- a residential loan made in the marketplace that is not guaranteed by FGA or the VA. o This refers to any standard home loan that is not insured or guaranteed by an agency of the US government. o *Conventional mortgages can be either fixed rate or adjustable rate. Conforming loan - a conventional loan that conforms to the requirements of the Federal National Mortgage Association (Fannie Mae). o Although both of these government-sponsored agencies are now privately owned, they are subject to government oversight, and congress sets the maximum size of home mortgages they are allowed to purchase from originating lenders. o Features of Conforming loans are: Standard forms for loan application, appraisals, etc. Maximum loan to values (max 95% LTV) Limit on loan amount ($417,000 current limit) Strict standards on payment rations for borrowers (total monthly payments no more than 36% of income.) *conventional loans have the lowest interest rate in the market. Historically, Fannie Mae conforming loans made up the majority of the loans in
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Chapter 11 - Chapter 11 Residential Mortgage Types And...

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