Chapter 4 The Mortgage Industry

Instead a mortgage company may act as a loan

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Instead, a mortgage company may: act as a loan correspondent for large investors or wholesale lenders, or draw on a line of credit from a commercial bank, then sell the loans and use the sale proceeds to pay off bank and make more loans. Sources of funds for lending
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Mortgage Companies Mortgage companies keep few if any loans in portfolio. Loans are either made on behalf of a large investor or sold on the secondary market. Sources of funds for lending
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Types of Mortgage Lenders Sometimes a private individual makes mortgage loans to home buyers on a small scale. A private lending business: may be legal, or may violate state licensing laws, usury laws, disclosure laws, or predatory lending laws. Alternative sources of financing
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Types of Mortgage Lenders Most important alternative source of financing for home buyers is the home seller. Seller may provide some or all of the financing. Common when institutional loans are hard to get or interest rates are high. Alternative sources of financing
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Summary Mortgage Companies & Alternatives i Mortgage company i Mortgage banker i Independent mortgage company i Private lenders i Home sellers
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Government Intervention in the Mortgage Industry The federal government has intervened in the mortgage industry many times and in many ways.
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Government Intervention in the Mortgage Industry The federal government has intervened in the mortgage industry many times and in many ways. Creation of the secondary market agencies was one important intervention.
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Government Intervention in the Mortgage Industry The federal government has intervened in the mortgage industry many times and in many ways. Creation of the secondary market agencies was one important intervention. Other large-scale interventions during: 1. the Great Depression in the 1930s, 2. the S&L crisis in the 1980s, and 3. the current economic crisis.
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Government Intervention The Depression Tremendous economic growth as U.S. expanded westward in 19 th century. Investment capital poured into real estate, including homes. Mortgage business and the economy as a whole were booming in early 20 th century. But 1929 stock market crash was followed by a general economic collapse.
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The Depression After the stock market crash: I Unemployment rose dramatically. I Hundreds of thousands of homeowners defaulted on their mortgages. I Many financial institutions failed. I Mortgage lending and home construction virtually ceased. Foreclosure epidemic
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The Depression New Deal: broad plan to pull the U.S. out of the economic crisis. Included intervention in real estate financing. Several agencies and programs created as part of the New Deal still exist, including: I Federal Housing Administration (FHA) I Federal Home Loan Bank Board (FHLBB) I Federal National Mortgage Association (Fannie Mae). New Deal initiatives
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The Depression Depression foreclosures led to the introduction of long-term, fixed-rate, amortized mortgage loans. Transforming home mortgages
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The Depression Depression foreclosures led to the introduction of long-term, fixed-rate, amortized mortgage loans.
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  • Spring '10
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  • mortgage lenders

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