Chapter 4 The Mortgage Industry

Chapter 4 The Mortgage Industry - Financing Residential...

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Financing Residential Real Estate Lesson 4: The Mortgage Industry
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Introduction In this lesson, we will cover: steps in the residential mortgage process; participants in the process, including loan originators and lenders; government intervention in the mortgage industry during the Great Depression and the S&L crisis; and the mortgage industry and the current economic crisis.
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Introduction Note that terminology concerning the mortgage industry isn’t always used consistently throughout the industry. Definitions given here won’t necessarily match the ones you encounter in the field. Terms such as loan origination, loan officer, and mortgage broker are used differently in different contexts and by different people.
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Overview of the Mortgage Process 1. Home buyer applies for a loan. 2. Loan originator helps buyer with application and submits it to lender(s). 3. Lender approves and funds loan. After the loan has been made: 1. Lender may keep loan in portfolio or sell it on secondary market. 2. Servicer (lender or another entity) collects payments, handles other administrative tasks.
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Loan Origination Loan originator who helps buyer apply may be: a loan officer, employed by a particular lender, or a mortgage broker, an independent agent who usually works with more than one lender.
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Loan Origination Loan originator who helps buyer apply may be: a loan officer, employed by a particular lender, or a mortgage broker, an independent agent who usually works with more than one lender. Loan may be originated in: a retail transaction (direct lending), or a wholesale transaction (indirect).
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Loan Origination Retail lending is the traditional way: 1. Buyer applies to Acme Bank. 2. Loan originator who works with buyer is a loan officer employed by Acme. 3. Loan officer submits application to Acme’s underwriting department. 4. If approved, Acme funds loan. Retail transactions
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Loan Origination Wholesale lending came to the fore in the 1990s. 1. Buyer applies to Zenith Mortgage. 2. Zenith, acting as an intermediary, may be: I a loan correspondent processing the loan on behalf of a large national lender, MegaBank, or I a mortgage broker submitting the application to one or more lenders, including MegaBank. Wholesale transactions
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Loan Origination Wholesale transactions By lending indirectly, through local loan correspondents or mortgage brokers, wholesale lenders reduce their overhead. They don’t have to pay for office space or have employees in every place they make loans.
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Loan Origination Loan correspondents Loan correspondents make loans for large investors, such as life insurance companies, pension funds, or wholesale lenders. Correspondent may handle entire origination
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Chapter 4 The Mortgage Industry - Financing Residential...

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