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Unformatted text preview: he most widely used in California. DRE REFERENCE BOOK
The “Reference Book” of the California Department of Real Estate outlines the origin and development of adjustable rate financing, and the consumer issues involved: Since FHA created the long–term, fixed–rate amortized mortgage loan in 1934, that has been the standard traditional form of financing for home purchases. In a stable economic environment, involving little or no inflation and relatively constant market 9-6 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 9: FIXED RATE MORTGAGE AND ALTERNATIVE MORTGAGE INSTRUMENTS
interest rates, these long–term, fixed–rate instruments should meet most of the practical needs of both lenders and borrowers. Increased and unpredictable inflation rates and uncertain future interest rates have made “traditional” financing unsuitable for many lenders and unrealistic or impossible for many borrowers. If interest rates increase, forcing lenders to pay higher interest rates to attract deposits, those lenders who have invested in long–term, fixed–rate mortgage instruments at lower interest rates have a serious economic problem that could be ruinous. On the other hand, if lenders will make loans only at interest rates high enough to reduce this risk, borrowers generally will be less willing to borrow and fewer prospective borrowers will qualify for loans. Alternative mortgage instruments are the means by which lenders and borrowers are responding to the realities of the economy. The peculiar needs of different kinds of lenders, as well as of the different classes of borrowers who are in need of credit to consummate home purchases (e.g., those borrowers whose incomes tend to keep pace with inflation, as distinguished from those whose dollar incomes do not increase sufficiently to maintain a constant real purchasing power), mean that there is no single optimum alternative mortgage plan that will suit all possible creditor–debtor combinations. The process of selecting the appropriate mortgage instrument in a particular s...
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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.
- Spring '10