Debt Test 3 - Debt Test 3 Residential Mortgage Loans o...

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Unformatted text preview: Debt Test 3 Residential Mortgage Loans o Mortgage Loans Loan secured by specified real estate property, which obliges the borrower to make a predetermined series of payments Specific contract by which the borrower conveys to the lender a security interest in the mortgaged property o Types of real estate properties Residential houses, condos, cooperatives, apartments Non-residential commercial and farm properties o Participants in the mortgage market Originators original lender includes thrifts, commercial banks, and mortgage bankers Servicers includes bank related entities, thrift related entities, and mortgage bankers Insurers include government agencies such as federal housing administration and veterans association as well as private mortgage insurance companies o Determinants of loan origination Payment to income ratio ratio of monthly payments to monthly income PTI = MP/MI Measures the ability of loan applicant to make the monthly payments Lower the ratio, the greater likelihood that applicant will be bale to meet the payments Loan to Value Ratio ratio of the amount of the loan to the market value of the property LTV = Amount of Loan / MV of property Measures how much of the equity value of the property is encumbered by debt Lower the ratio, the more protection the lender has if applicant defaults and property is sold o Mortgage Originators investment options Hold the mortgage Source of revenue origination fee o Fee is expressed in points, where one point represents 1% of the borrowed funds Sell the mortgage Source of revenue secondary marketing profit o Originator sells a mortgage to an investor who wishes to hold the mortgage of use the mortgage as collateral for issuance of securities Securitize the mortgage themselves o Servicing of a Mortgage Collecting monthly payments, forwarding proceeds to owners, sending payment notices to borrowers, reminding mortgagors when payments are overdue, maintaining records of principal balances Source of revenue servicing fee Usually a fixed percentage of the outstanding mortgage balance o Insurance of a Mortgage Conventional mortgage mortgage that is not insured or guaranteed by an agency of the US government Lender makes the loan based on the credit of the borrower and the property being pledged as security for the mortgage Mortgage insurance Lender may take out mortgage insurance to provide a guarantee for the fulfillment of the borrowers obligations Providers Federal Housing commission, Veterans Administration, Private o Federal Housing Administration Insures loans made by private lenders that meet FHA property and credit risk standards Borrower pays up front premium of 1.5% of loan amount and monthly premium for 5-10 years o Veterans Administration Designed to help veterans obtain home mortgage loans with favorable terms that...
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This note was uploaded on 02/17/2012 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

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Debt Test 3 - Debt Test 3 Residential Mortgage Loans o...

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