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Residential Mortgage Lending: Principles and Practices, 6e

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Residential Mortgage Lending: Principles and Practices, 6e. Chapter 1 History of Mortgage Lending. Objectives. After completing this chapter, you should be able to: Distinguish between title theory and lien theory .

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  • After completing this chapter, you should be able to:
    • Distinguish between titletheory and lientheory.
    • Describe the mortgage lending activities of the early thrifts, mortgage companies and commercial banks.
    • Cite the effects of the Depression on financial institutions and their mortgage lending practices.
    • List and describe the function of the major federal legislation enacted to stabilize real estate values in the 1930s.
    • Identify the reasons for the rapid growth in single-family mortgage lending after World War II.
    • Identify the major consumer protection acts.
    • Cite the impact of deregulation, inflation, and high interest rates and other recent events on the ability of the average American family to afford housing.
  • After completing this chapter, you should be able to:
    • Understand the magnitude of the refinancing wave of 2001-03 and how the average age life of loan for a 30-year mortgage was only about three years during this period.
    • Understand the dynamics of the rapid expansion and collapse of the mortgage lending industry and real estate markets since 2000.
    • Be more aware of important regulatory activity in the near future.
  • Record years in total annual residential mortgage origination volume of more than $3 trillion in 2003, 2005, and 2006 - $2 trillion 2001.
  • 30-year record lows for fixed-rate mortgages.
  • Home ownership at a historical high of 69 % (2004)
  • Extensive use of Automated Underwriting systems and other technological changes.
  • Double the level of mortgage-backed securities (MBSs) outstanding, from $3.2 trillion in 2000 to a peak of $7.6 trillion in 2009, and rapid fall to $3.1 trillion in 2010.
  • Evolution in alternative types of mortgage instruments and nonconforming programs.
  • Ever-increasing dominance of the mortgage banking strategy.
  • Revamping of the entire federal regulatory and examination structure for mortgage lending.
landmark federal legislation
Landmark Federal Legislation
  • Home Owners Loan Act (1933)
  • National Housing Act (1934)
    • Federal Housing Administration (FHA)
    • Federal Savings and Loan Insurance Corporation (FSLIC)
  • Housing Act (1949)
  • Housing and Urban Development Act (1968)
  • Consumer Protection Act (1968)
more Federal Legislation
  • Housing and Urban Development Act(1968)
  • Financial Institutions Reform, Recovery, and Enforcement Act (1989)
  • Home Ownership and Equity Protection Act (1994)
  • The Homeowners Protection Act(1998)
  • Housing Economic and Recovery Act (2008)
  • Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
  • Need for Additional Funds for Housing
  • The Role of Subprime Lending
  • Evolving Mortgage Lending Issues in the New Century
what do you think
What Do You Think?
  • Examine how the concept of private ownership of land has evolved since the days of the civilizations of Babylonia and Egypt?
  • How has the involvement of the federal government in real estate and mortgage lending allowed for growth in homeownership?
what do you think1
What Do You Think?
  • The Great Depression was the beginning of modern residential mortgage lending. Examine the changes that occurred during this period and their importance to modern mortgage lending.
  • The 1960-1970 period witnessed the enactment of many major consumer protection laws/regulations. How have these federal enactments changed the way in which residential mortgage lending is conducted?
what do you think2
What Do You Think?
  • What were two reasons for the stock market crash of 1987 and what was its impact on mortgage lending?
  • What role did subprime lending play in the mortgage industry events during 2000-2010?
  • What is the difference between the Title Theory and Lien Theory of mortgage lending? Which exists in your state?
check your understanding
Check Your Understanding
  • Prior to the development of English common law, mortgage lending generally favored the mortgagor.
  • Under title theory, the title remains with the mortgagor, and the mortgagee has only a lien against the property.
  • In the U.S., little real estate financing was done on an organized basis until after the Civil War.
  • The first thrift institutions were created as temporary organizations, intended to exist only until each member purchased a home.
  • Early mortgage companies primarily financed farms, and sold the loans to wealthy East coast investors.
check your understanding1
Check Your Understanding
  • Commercial banks were originally organized to provide financing for farmland and homes.
  • Amortization of mortgages was non­existent before the 1930s.
  • Following the stock market crash in 1929, lenders were able to sell foreclosed properties at inflated prices and earn record profits.
  • Many states passed laws in the Depression years suspending foreclosures.
  • The Federal Housing Administration (FHA) was created in the 1930s to purchase or refinance defaulted mortgages.
check your understanding2
Check Your Understanding
  • Financial institutions suffered liquidity problems following World War II, due to the tremendous demand for housing by returning veterans.
  • During the Great Depression mortgagors had little difficulty refinancing their home mortgage loans.
  • Technology will continue to make mortgage originations easier for both borrower and lender.
  • The creation of the secondary mortgage market contributed to a boom in housing construction and financing.
  • The unknown impact of RESPA, Truth In Lending, Mortgage Disclosure Improvement Act, and the SAFE Act will have on mortgage origination.