All credit unions offer savings accounts or time deposits. The largerinstitutions also offer checking and money market accounts. The sharesand deposits in a credit union are insured by the National Credit UnionShare Insurance Fund (NCUSIF), which is similar to the deposit insuranceprotection offered by the Federal Deposit Insurance Corporation (FDIC).The NCUSIF is backed by the full faith and credit of the United StatesGovernment. Credit unions’ financial powers have expanded to include almost anythinga bank or savings association can do, including making home loans,issuing credit cards, and even making some commercial loans. Creditunions are exempt from federal taxation and sometimes receive subsidiesin the form of free space or supplies from their sponsoring organizations. The members receive higher interest rates on savings and pay lower rateson loans. Both secured and unsecured loans are made at lower rates thanother lenders can offer. Because of the low overhead and other costs ofdoing business, credit unions are a growing source of funds for consumers.The National Credit Union Association (NCUA) supervises credit unionsand the federally insured National Credit Union Share Insurance Fund(NCUSIF) insures deposits. Life Insurance Companies Life insurance companies obtain their funds from insurance premiums.Unlike the demand deposits of depository institutions, the premiumsinvested in life insurance companies are not subject to early withdrawaland do not earn a high rate of interest. Therefore, life insurance companieshave vast amounts of money to invest. Life insurance companies do not usually originate individual loans in thesingle-family residential market. However, they are a major supplier ofmoney for large commercial loans to developers and builders. Lifeinsurance companies usually do not make construction loans but maketakeout loans on large commercial properties. A takeout loanis thelongterm permanent financing used to pay off a construction loan. Example: Developer David has a $5,000,000 interimconstruction loan from a local bank to build a smallcommercial center. Upon completion of construction,the permanent financing from a life insurancecompany pays off (takes out) the construction loan. Loans made by life insurance companies have low interest rates and thelowest loan-to-value ratios (percentage of loan amount to appraised value).Life insurance companies also have stricter underwriting standards thanother lenders. Even though they may deal directly with the borrower, they____________________________________________________________ Unit 5: Financing Real Estate 157
usually fund commercial loans through loan correspondents who negotiateand service the loans. Life insurance companies have been major investors in the secondarymortgage market. Some life insurance companies have entered theprimary mortgage market by creating wholly owned subsidiary mortgagecompanies.
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Finance, Mortgage loan, Federal Home Loan Mortgage Corporation