Prelim-Quiz-27

VA loans cont'd
Assumability-
Any VA mortgage loan made before March 1, 1988, may be assumed by the
next owner of the property, who need not be a veteran and need not
prove qualification to the lender or the VA. For loans made after
March 1, 1988, the assumer (who need not be a veteran) must prove
creditworthiness, and the original borrower is free of future
liability.
Refinancing-
VA loans may be refinanced with a streamline process for a fee of 0.5
percent.

Government Backing via the Secondary Market

- A market for the purchase and sale of existing mortgages, i.e.
HELOCs, 2nd mortgages, designed to provide greater liquidity of
mortgages.
-Lenders in the primary mortgage market originate loans directly to
borrowers. Other primary lenders may sell packages of loans to large
investors in what is known as the secondary mortgage market. A lender
may wish to sell a number of loans when it needs more money to meet
the mortgage demands in its area.
- A major source of secondary mortgage market activity is warehousing
agencies, which purchase mortgage loans and assemble them into large
packages of loans for resale to investors such as insurance companies
and pension funds. The major warehousing agencies are Fannie Mae,
Ginnie Mae, and Freddie Mac.

Govt Backing cont'd

-Fannie Mae (FNMA)-
a privately owned corporation. It raises funds to purchase loans by
selling government-guaranteed FNMA bonds. Originally, FNMA started
out as a governmental agency. Mortgage bankers are actively involved
with FNMA, originating loans and selling them to FNMA while retaining
the servicing functions. FNMA is the nation's largest purchaser of
mortgage. When Fannie Mae talks, lenders listen. Because FNMA
eventually purchases one mortgage out of every ten, it has great
influence on lending policies. When Fannie Mae announces that it will
buy a certain type of loan, local lending institutions often change
their own regulations to meet the requirements.

Govt Backing cont'd

-Ginnie Mae (GNMA)-
formerly called the Government National Mortgage Association. The
Ginnie Mae pass-through certificate lets small investors buy a share
in a pool of mortgages that provides for a monthly "pass-through" of
principal and interest payments directly to the certificate holder.
-Freddie Mac-
provides a secondary market for mortgage loans. Freddie Mac buys
mortgages, pools them, and sells bonds with the mortgages as
security.

Most lenders use a standardized mortgage application and other forms

that are accepted by Freddie Mac and Fannie Mae.

Noncomforming loans
- When Fannie Mae and Freddie Mac announce that they will buy loans
only up to a certain size ($417,000 for one-family homes), many local
lenders set that as their own limit. Loans higher than Fannie Mae's
or Freddie Mac's maximum loan limit are known as nonconforming loans.
A nonconforming loan usually carries a slightly higher rate of
interest.
- A loan that goes from $417,000 to $625,500 is called a non-jumbo
loan, or a high balance loan.
- Anything over $625,500 uses a 'Jumbo' loan.
The 'Jumbo loans' are not purchased by Fannie Mae or Freddie.
Typically are sold on the secondary market to a REIT or some sort of
Equity Company, or Wall Street firm, or another bank. But they don't
always follow the guidelines for the conventional as well as the high
balanced loans.
- Nonconforming mortgages (portfolio loans) do not have to meet
uniform underwriting standards and can be flexible in their
guidelines. The borrower with an unusual credit situation or a unique
house may need a nonconforming loan.

Financing Legislation
The federal government regulates the lending practices of mortgage
lenders through the Truth-in-Lending Act, Equal Credit Opportunity
Act (ECOA), and Real Estate Settlement Procedures Act (RESPA).

Regulation Z
The Truth-in-Lending Act, enforced through Regulation Z (that is, the
Truth-in-Lending Act as it applies to the advertisement of credit
terms), requires that credit institutions inform the borrower of the
true cost of obtaining credit so that the borrower can compare the
costs of various lenders and avoid the uninformed use of credit. All
real estate transactions made for personal or agricultural purposes
are covered. The regulation does not apply to business or commercial
loans.
It requires that the customer be fully informed of all finance
charges, as well as the true annual interest rate, before a
transaction is consummated. In the case of a mortgage loan made to
finance the purchase of a dwelling, the lender must compute and
disclose the annual percentage rate (APR) in a written Truth-in-
Lending statement provided to the mortgagor.

Three-day right of rescission

Lenders close on the loan, but need to withhold the funds from the
borrower until the 3 day rescission period has passed. In extreme
situations the lender might agree to waive that period for the
borrower, but there can be serious consequences for the lender.
Borrowers have the right to change their minds about the loan in 3
days with no questions asked by giving written notice to the lender
before the 3 days are up.