Chapter 23 – Mortgage Market. Property Backed Loans Residential Loans Commercial Loans Process Originators Origination Fee – Points Servicing Fee PTI – Payment to Income LTV- Loan to Value. Chapter 23 – Mortgage Market. Commitment Letter Offered by Originator Borrower has options
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Chapter 23 – Mortgage Market • Property Backed Loans • Residential Loans • Commercial Loans • Process • Originators • Origination Fee – Points • Servicing Fee • PTI – Payment to Income • LTV- Loan to Value
Chapter 23 – Mortgage Market • Commitment Letter • Offered by Originator • Borrower has options • Lock in date of interest rate • At Loan Application • At Letter Acceptance • At Closing • Pays a fee to Originator for Option • Conforming vs. Non-Conforming Loans • Federal Sponsored Agency Requirements
Chapter 23 – Mortgage Market • Mortgage Designs • Traditional – Fixed Rate and Equal Payments for Life of Loan • Amortized • Fully Paid at the End • No Prepayment Penalty • Adjustable Rate Mortgages (ARMs) • Balloon Resets (Promised Funds with varying Rates over Life of Mortgage) • Graduated Payment, Price-Level, & Duals
Chapter 23 – Mortgage Market • Non-Conforming Loans • Alt-A • Borrower can not meet qualifying standard • Example, self employed and short on PTI • Subprime Loans • History of bad credit • Recent “catastrophic” event (medical) • Commercial Loans • Based on income from the property not from the individual • Prepayment Protection
Chapter 23 – Mortgage Market • Example of a Traditional Loan • Process, Rates, Payments • Prepayments • Moving, Refinancing • Foreclosure • Missed Payments • Insurance (PMI) • Amortization Schedule • Interest paid in arrears • EXCEL SPREADSHEET - CALCULATOR
Chapter 23 – Mortgage Markets • More Topics Reverse Mortgages High LTV Commercial Loans Debt-to-service ratio Pre-payment lockout Defeasance of debt Cash Flow Uncertainty