All credit unions offer savings accounts or time deposits The larger

All credit unions offer savings accounts or time

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All credit unions offer savings accounts or time deposits. The larger institutions also offer checking and money market accounts. The shares and deposits in a credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF), which is similar to the deposit insurance protection offered by the Federal Deposit Insurance Corporation (FDIC). The NCUSIF is backed by the full faith and credit of the United States Government. Credit unions’ financial powers have expanded to include almost anything a bank or savings association can do, including making home loans, issuing credit cards, and even making some commercial loans. Credit unions are exempt from federal taxation and sometimes receive subsidies in the form of free space or supplies from their sponsoring organizations. The members receive higher interest rates on savings and pay lower rates on loans. Both secured and unsecured loans are made at lower rates than other lenders can offer. Because of the low overhead and other costs of doing business, credit unions are a growing source of funds for consumers. The National Credit Union Association (NCUA) supervises credit unions and 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 premiums invested in life insurance companies are not subject to early withdrawal and do not earn a high rate of interest. Therefore, life insurance companies have vast amounts of money to invest. Life insurance companies do not usually originate individual loans in the single-family residential market. However, they are a major supplier of money for large commercial loans to developers and builders. Life insurance companies usually do not make construction loans but make takeout loans on large commercial properties. A takeout loan is the longterm permanent financing used to pay off a construction loan. Example: Developer David has a $5,000,000 interim construction loan from a local bank to build a small commercial center. Upon completion of construction, the permanent financing from a life insurance company pays off (takes out) the construction loan. Loans made by life insurance companies have low interest rates and the lowest loan-to-value ratios (percentage of loan amount to appraised value). Life insurance companies also have stricter underwriting standards than other lenders. Even though they may deal directly with the borrower, they ____________________________________________________________ Unit 5: Financing Real Estate 157
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usually fund commercial loans through loan correspondents who negotiate and service the loans. Life insurance companies have been major investors in the secondary mortgage market. Some life insurance companies have entered the primary mortgage market by creating wholly owned subsidiary mortgage companies.
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