FIN 3334- Lender risk mitigation notes (lesson 4)


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Unformatted text preview: nated Mortgage Loans (does not make loans!) c) Targeted Towards: Borrowers w/ modest incomes buying modest homes d) Fee Structure: Large Upfront Fee and Monthly Insurance Premium (MIP) 2. VA‐Guaranteed Mortgages a) Established for Veterans after World War II (90 days of war, 181 of peacetime, 6y of reserve) b) Gov’t Guarantees: Loss by Lender Up to Fixed Percentage, Vet May have to Repay Gov’t c) Fee Structure: Minimal and Adjusted Based on Length of Service or Disability C. Borrowers Purchase Privately‐Provided Mortgage Insurance (PMI) 1. Required if LTV > 80% to Be Eligible to be Considered Conforming Loan 2. Insures Lender for: first 20% of Loss if Borrower Defaults, Lender Responsible for remainder 3. Fee Structure: a) Borrower Pays Monthly Premium to Insurer (~5 basis points per month) b) Responsible to Make Payments to Insurer until LTV ≤ 80% c) PMI Fees ARE included in legal APR Calculation Example 2. You have been pressured to buy a $400,000 house, although you only have $40,000 available for...
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