Looking for Quiz 11 :
Sources of Funds for Residential Mortgages
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Explain the importance of Fannie Mae and Freddie Mac to the housing finance system in the United States.
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The basic activities of Fannie Mae in the secondary mortgage market:
Fannie Mae and Freddie Mac have had a vast array of effects on the housing finance system of the U.S.
• Their first impact was to bring much-needed liquidity to housing finance.
• A second effect was to standardize the documents and procedures in home mortgage lending.
• A third effect has been to encourage greater efficiency and flexibility in the process of home mortgage lending.
• Another effect has been to broaden the range of households able to obtain mortgage financing through more sophisticated and effective loan underwriting.
• Finally, they have had a great effect on the types of loans presently available to homeowners.
Through all of this the Government-Sponsored Enterprises (GSEs) have reduced the interest rates and costs of borrowing for homeowners.
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Explain what is meant by forward commitments and standby forward commitments. Which part of the mortgage banker's pipeline is often hedged with forward commitments With standby forward commitments Why
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A forward commitment is a commitment now to sell/buy something in the future at a price set now. The commitment is mandatory; that is, the parties must complete the transaction. A standby forward commitment is the same arrangement except that one party, usually the seller, has the option of completing the transaction (delivering) or abandoning the contract.
Mortgage bankers use forward commitments to hedge against price changes on loans. This commitment obligates the secondary market investor to purchase, and the mortgage banker to sell, a pre-specified dollar amount of a certain type of loan. It is used for loans that are sure to be originated.
Standby forward commitments hedge price changes for loans that may or may not be originated. Standby forward commitments from secondary market investors give lenders the right, but not the obligation, to sell a certain dollar amount of a certain loan type to the issuer of the standby commitment.
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Explain how affordable housing loans differ from standard home loans.
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Affordable housing loans include a low down payment requirement and allow for extensive flexibility in one of the "three Cs" of underwriting, while maintaining the other two at more normal standards. Therefore, three factors involved in qualifying for a loan may be relaxed: the loan-to-value ratio, credit qualifications, and payment capacity.
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What is the primary purpose of the risk-based capital requirements that Congress enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
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Describe the basic activities of Fannie Mae in the secondary mortgage market. How are these activities financed
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For all except very high loan-to-value conventional home loans, the standard payment ratios for underwriting are:
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You have just signed a contract to purchase your dream house. The price is $120,000 and you have applied for a $100,000, 30-year, 5.5 percent loan. Annual property taxes are expected to be $2,000. Hazard insurance will cost $400 per year. Your car payment is $400, with 36 months left. Your monthly gross income is $5,000. Calculate:
a. The monthly payment of principal and interest (PI).
b. One-twelfth of annual property tax payments and hazard insurance payments.
c. Monthly PITI (principal, interest, taxes, and insurance).
d. The housing expense (front-end) ratio.
e. The total obligations (back-end) ratio.
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Currently, which type of financial institution in the primary mortgage market provides the most funds for the residential (owner-occupied) housing market
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The most profitable activity of residential mortgage bankers is typically:
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The reduced importance of certain institutions in the primary mortgage market has been largely offset by an expanded role for others. Which has diminished, and which has expanded
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The numerator of the standard housing expense (front-end) ratio in home loan underwriting includes:
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