Chapter 1: Scope of Mortgage Loan

BrokerageBy Dr. D. Grogan

M.C. “Buzz” Chambers

PREVIEW

The purpose of this unit is to acquaint the learner with the development of finance and describe how the industry has evolved into current banking and lending practices for use in our society. The licensing and legal requirements are outlined in addition to the introduction of professional mortgage organizations.

Contents

PART 1 SCOPE OF THE BUSINESS

Ch 1: Scope of the Loan Brokerage

1.1 Overview of the Book 1.2 Historic perspective

In the beginning Early progress Unstable market Today

1.3 Basic information Hard money versus seller

carry-back money Careers in mortgage loan

brokering Loan originators

1.4 Licenses and Professional organizations Legal and licensing

requirements Professional organizations

Student Learning Outcomes for Chapter 1:1. Understand the structure of the book.2. Describe the history of real estate lending in the

United States.3. Explain current and future trends in lending4. Learn about career opportunities in the mortgage

loan brokering and lending field.5. Differentiate between a mortgage broker and a

mortgage banker. 6. Identify various organizations involved with

mortgage loan brokerage.

1.1 Overview of the Book

Part 1: 1. Scope of loan brokerage2. Sources of business

Part 2: Loans3. Conventional4. Government 5. Finance & other disclosures

Part 3:Processing 6. Pre-Qualification & Loan Application 7. Credit and disclosures8. Verifications & Stacking Order9. Escrow Settlement, Title & Appraisal10. Underwriting & Quality Control11. Docs, Funding & Closing

1.1 Overview of the Book Part 4:Secondary Money Market 12. Shipping and Servicing

Part 5: Regulations and Operations13. Business Operational Practices & DOC14. California DRE License Activity for Loan Agents15. Math and Trust Funds for the Loan Agent

APPENDIXA. Loan Application B. Credit ReportC. Verifications D. Escrow InstructionsE. AppraisalF. Title ReportG. Loan DocumentsH. Employment forms I. Wholesale Brokerage Agreements J. Internet Web SitesK. Glossary

1.2 Historic Perspective

The Mortgage Loan Broker helps: Buyers obtain financing to purchase property Owners to obtain funds from refinance Connect borrowers with available lenders Provide lenders with a completed loan package

Real estate has many loan types Common terms include:

Originator: Helps obtain the loan Principal: Borrower Principal: Unpaid loan balance Lender: Creates the loan by giving funds

HISTORY OF FINANCEDevelopment of Financial Institutions

Pre 1600’s 1863

Things of value

hidden in home Deposited

in King’s treasury

Deposited with goldsmiths,

bullion dealersMoneyholders invest funds

Development of checks, increase

in volume

English system imported to

America

National Bank Act

passed

Chronology of U. S. Banking System1910 Federal Reserve System Act

Savings and Loan AssociationCalifornia Real Estate License (DRE)

1930’s Federal Home Loan Bank Act (FHLB)National Housing ActFederal Housing Administration created (FHA)Federal National Mortgage Association (FNMA)

1940’s Serviceman’s Readjustment ActVeterans Administration changed name to Department of Veterans Affairs (DVA)

Evolution of Banking Early real estate loans made by family members FHA – Federal Housing Administration FNMA – Federal National Mortgage

Association VA – Veteran’s Administration GNMA – Government National Mortgage

Association FHLMC - Federal Home Loan Mortgage

Corporation

Set guidelines and establish standards for lending practices.

Modern Real Estate Finance

Regulated Banking System reshaped finance: Land used as collateral Appraisal requirements Minimum housing standards compliance Secondary money market developed Government involvement with requirements for

ownership

Chronology of U. S. Banking System1950’s Federal Deposit Insurance Act (FDIC)

Bank Holding Company Act

1960’s Housing and Urban Development Act (HUD)Fair Housing Act Fair Credit Reporting Act National Environmental Policy ActInterstate Land Sales Full Disclosure ActGovernment National Mortgage Association (GNMA)Consumer Credit Protection Act (Truth in Lending -

Regulation Z)

Chronology of U. S. Banking System1970’s Emergency Home Finance Act

Flood Disaster Protection ActReal Estate Settlement Procedures Act (RESPA)Equal Credit Opportunity Act (ECOA)Home Mortgage Disclosure ActFair Lending Practices ActCommunity Reinvestment Act (CRA)Housing and Community Development

Amendments

Chronology of Lending Regulations (cont)1980’s Depository Institutions Deregulation and Monetary

Control Act (DIDMCA):Overrides state usurySimplified Truth-in-lendingRemoved geographic restrictions

Omnibus Reconciliation ActGarn-St. Germain Depository Institutions ActDeficit Reduction ActCompetitive Equality Banking ActFinancial Institutions Reform, Recovery and Enforcement Act (FIRREA):

Created Office of Thrift Supervision (OTS)Required mortgage insuranceEstablished appraisal licensing laws

Restructure since 1990’s

Increase in consumer debt Decrease in home ownership Increased loan specialization Better access to information on loans

Today

TARP-Troubled Asset Relief Program Subprime market crises October 2008 Created the Office of Financial Stability

GFE-Good Faith Estimate DRE 885 January 1, 2010 Real Estate Settlement Recovery Act HUD-Housing and Urban Development

SAFE-Secure and Fair Enforcement Act Nationwide Licensing System and Registry By December 31, 2010

1.3 Basic Information

Hard Money vs. Seller Carryback Money Hard Money: institutional or non-institutional loans

where a lender cash is put into a transaction. Soft Money: an extension of credit where no cash

is exchanged. Seller carryback loan. A soft money loan where the

seller extends credit to the buyer, using the seller’s equity.

Holder in due course: when a loan is sold to a third party.

Careers in Loan Brokerage

Direct employee of a bank or owner of the funds. Salaried position

Licensed loan personnel Commission only Licensed by the state Educational requirements

Non-licensed areas Marketing Loan processing

Loan Originators

1. Mortgage broker

2. Mortgage banker

3. Commercial bank or thrift institution

4. Credit union

5. Loan correspondent

LOAN ORIGINATORS

DRE Broker

Loan Origination

Loan Processing

Package sent for Lender Approval

and Funding

MORTGAGE BANKER

Sources of FundsBankTheir Own FundsInvestor (FNMA, Corp)

LoanOrigination

LoanProcessing

Loan ApprovalTheir Own Lender

MI Investor

ClosingFunding

WarehouseLine

ServicingInsuring

MORTGAGE BROKER

LOAN ORIGINATORS (cont)

Depositors(Interest Income)Bank Income

LoanOrigination

LoanApproval

ClosingFunding Dept

ServicingDept.

Bank or Savings & Loan

TYPES OF LENDERS

Thrifts: Savings & Loans Commercial Banks

Mortgage CompaniesMutual Savings Banks

Insurance Companies

Importance of Real Estate Finance Foundation of wealth accumulation Allows average person to buy a residence Originate in the primary market Sold in the secondary money market Investors purchase notes on the loans Moves capital geographically in the market

1.4 Licensee & Professional Organizations CALIFORNIA REQUIREMENTS

First state to establish licensing laws: Department of Real Estate (DRE)

Mortgage loan brokers need a state license Mortgage loan bankers need a license Direct employees of financial institutional lenders

are not required to have a license

Professional Organizations

CAMB- California Association of Mortgage Brokers www.cambweb.org

NAMB - National Association of Mortgage Brokers www.namb.org

MBAA- Mortgage Bankers Association of America www.mbaa.org

NAPMW- National Association of Professional Mortgage Women www.napmw.org/