real estate finance - full book (500 pgs)

In late 1983 and early 1984 many builders and lenders

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Unformatted text preview: are becoming increasingly rare. SOURCES OF CONVENTIONAL LOANS The main sources of conventional money are mortgage bankers and mortgage companies, commercial banks, and savings banks. Every lender has to adhere to certain state or federal agencies' regulations; but beyond that, what a lender does is a matter of company policy. For example, no regulation dictates what interest rate a lender should charge. That decision is up to the lender. Besides interest rate, there are many other financing terms and conditions for which each lender sets its own policy, based on market (business) judgments. Again it must be stressed that this applies only if the lender is making a loan that it is going to keep in its inventory, the so–called portfolio loan. But if a conventional lender wishes to resell the loan to the Federal National Mortgage Association (Fannie Mae) or the Federal Home loan Mortgage Corporation (Freddie Mac), the lender must stick to standards established by these major loan purchasers. BUY–DOWN MORTGAGE A buy–down mortgage is a fixed–term, fixed–rate mortgage that has an effective interest rate below the note rate. It serves as a method of qualifying borrowers in a high–interest rate market by discounting the effective interest rate. This reduction is accomplished by the use of an impound account usually established by a builder and is sometimes referred to as a 3–2–1 or a step mortgage. The reason for this type of mortgage is to lower the interest rate the borrower will pay in the first few years of the mortgage, especially the interest rate the borrower would pay in the first year of the mortgage. The importance of reducing the interest rate is that it will take less income for the borrower to qualify for the loan. It should be noted that the lender will receive the full principal and interest (P&I) payment as called for in the note, but there is no negative amortization because the difference between the payment made by the borrower and the amount received by the lender is taken from the...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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