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Unformatted text preview: Housing Administration (FHA) Created in 1934; Insures Loans against Default Mod Income buyers Purchasing Modest Homes Borrowers pay 2 fees to Gov't... Upfront premium equal to 1.5% of loan principal Monthly premium as fixed % of loan balance Fees Usually Pay for Cost of Insurance (No Gov't Subsidy) Veterans Administration (VA) Loans Guarantees up to 50% of Private Loans to Vets Upfront, one time fee (1.25% 2% of Principal) In case of default, Vets must repay Gov't FHA/VA Loans Called Non Conventional Loans Texas Tech University 7 8 9 Lesson 9: Origination and Sec. Markets 3 Real Estate Fundamentals Dr. Eriksen PRIVATE MORTGAGE INSURANCE Provides Co Insurance for the Lender Insurance Company Responsible for 1 20% Loss Lender responsible for bottom 80% of Loss Typical Fee Structure Borrower Pays Monthly Premium (5bp of Orig Bal) Continues to Pay Until LTV < 80% Borrowers Receives No Benefit from PMI Significantly Increases Borrowing Costs Piggyback Loans Attractive Alternative to PMI Required of Resid Loans by GSEs if LTV > 80 % Flow of Funds Portfolio Lending Financial Intermediaries Surplus Income Units Deficit Income Units Portfolio Lending Traditional Method of Lending (Portfolio) Fund Long term Loans with On Demand Deposits Earn Gap in Short v. Long Term Interest Rates Potential Flaws with Traditional Methods Good Loans Might Outnumber Deposits Banks Exposed to Local Economic Shoc...
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- Fall '08