{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

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

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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 veteran’s 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 Originator’s 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
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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 borrower’s obligations Providers – Federal Housing commission, Veteran’s 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 Veteran’s Administration Designed to help veterans obtain home mortgage loans with favorable terms that
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern