Unit 1 Scope of Mortgage Loan Brokerage California

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. Unit 1

1. 2. 3. 4. 5. 6. To describe general information about the mortgage loan business, including how the mortgage loan broker helps: To acquaint the learner with the history of financing. To describe the evolution of banking and lending practices. To better understand the importance of financing to the field of real estate to the principal, or borrower. To discuss the basic exemptions to California license requirements for lenders. To bring out various organizations involved with mortgage loan brokerage. Unit 1 3

Section I: The MLB Business The Mortgage Loan Broker helps: n n 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: n n n Originator: Creates the loan Principal: Borrower Principal: Unpaid loan balance Unit 1 4

HISTORY OF FINANCE Development of Financial Institutions Pre 1600’s Things of value hidden in home Deposited in King’s treasury 1863 National Bank Act passed English system imported to America Deposited with goldsmiths, bullion dealers Development of checks, increase in volume Moneyholders invest funds Unit 1 5

Chronology of U. S. Banking System 1910’s Federal Reserve System Act Savings and Loan Association California Real Estate License (DRE) 1930’s Federal Home Loan Bank Act (FHLB) National Housing Act Federal Housing Administration created (FHA) Federal National Mortgage Association (FNMA) Regulated Banking System reshaped finance: ØLand used as collateral ØAppraisal requirements ØMinimum housing standards compliance ØSecondary money market developed ØGovernment involvement with requirements for ownership Unit 1 6

Chronology of U. S. Banking System 1940’s Serviceman’s Readjustment Act Veterans Administration changed name to Department of Veterans Affairs (DVA) 1960’s Housing and Urban Development Act (HUD) Fair Housing Act Fair Credit Reporting Act National Environmental Policy Act Interstate Land Sales Full Disclosure Act Government National Mortgage Association (GNMA) Consumer Credit Protection Act (Truth in Lending Regulation Z) Unit 1 7

Chronology of U. S. Banking System 1970’s Emergency Home Finance Act Flood Disaster Protection Act Real Estate Settlement Procedures Act (RESPA) Equal Credit Opportunity Act (ECOA) Home Mortgage Disclosure Act Fair Lending Practices Act Community Reinvestment Act (CRA) Housing and Community Development Amendments Unit 1 8

Chronology of Lending Regulations (cont) 1980’s Depository Institutions Deregulation and Monetary Control Act (DIDMCA): Overrides state usury Simplified Truth-in-lending Removed geographic restrictions Omnibus Reconciliation Act Garn-St. Germain Depository Institutions Act Deficit Reduction Act Competitive Equality Banking Act Financial Institutions Reform, Recovery and Enforcement Act (FIRREA): Created Office of Thrift Supervision (OTS) Required mortgage insurance Established appraisal licensing laws Unit 1 9

Restructure since 1990’s Increase in consumer debt Decrease in home ownership Increased loan specialization Better access to information on loans Unit 1 10

LOAN ORIGINATORS MORTGAGE BROKER DRE Broker Loan Origination Loan Processing Package sent for Lender Approval and Funding MORTGAGE BANKER Loan Origination Loan Processing Sources of Funds Bank Their Own Funds Investor (FNMA, Corp) Loan Approval Their Own Lender MI Investor Servicing Insuring Warehouse Line Unit 1 Closing Funding 11

LOAN ORIGINATORS (cont) Bank or Savings & Loan Origination Loan Approval Servicing Dept. Closing Funding Dept Depositors (Interest Income) Bank Income Unit 1 12

Savings & Loans Commercial Banks TYPES OF LENDERS Insurance Companies Mortgage Companies Mutual Savings Banks Unit 1 13

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. Unit 1 14

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 Unit 1 15

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 Unit 1 16

Professional Organizations CAMB - California Association of Mortgage Brokers NAMB - National Association of Mortgage Brokers MBAA - Mortgage Bankers Association of America NAPMW- National Association of Professional Mortgage Women Unit 1 17

STUDENT EXERCISES UNIT 1: Solve the following problems: 1. Describe the changes in lending practices from early borrowing to current institutional practices. Answer: 1. Early home buyers could not obtain institutional financing and had to rely on their own savings or private, often family member, loans 2. Government regulation in lending practices prevailed after the 1930’s economic depression 3. The 1980’s deregulation brought about changes in loan criteria, appraisal standards and practices and mortgage insurance requirements Unit 1 18

STUDENT EXERCISES UNIT 1: 2. Why has the business of the mortgage loan broker increased when borrowers have more access to direct institutional lenders and general loan information? Answer: 1. Many borrowers do not qualify according to primary lender standards 2. A mortgage loan broker can submit a borrower’s loan package to more than one lender to obtain various loan types that may be more beneficial to a prospective borrower than the loans available through one institutional lender both 3. Institutional lenders, as they combine and merge, offer fewer choices for consumers whereas mortgage loan brokers offer primary “A” borrower Unit 1 and many “B” and other nonloans 19

STUDENT EXERCISES UNIT 1: 3. List the benefits of being associated with a professional mortgage loan brokerage association for the working professional in the industry. Answer: 1. Affiliation with other professionals to handle their loans 2. Access to other professionals to refer loans that you are not able to make 3. Lobbying efforts for the industry 4. Education within the field by professional speakers on new information Unit 1 20

STUDENT REVIEW QUIZ UNIT 1 1. The organization that offers mortgage loan brokers education and designations is known as: a. National Association of Real Estate Sales Associates b. National Mortgage and Trust Deed Underwriters of America c. California Association of Mortgage Brokers d. California Association of Realtors and Mortgage Bankers 2. Which mortgage loan broker is not required to hold a DRE license? a. Agent, acting for more than one principal b. Agent, acting for only two principals c. Employee of the institutional lender d. Salesperson handling real estate loans under a Broker Unit 1 21

STUDENT REVIEW QUIZ UNIT 1 3. The note for the real estate loan is: a. usually sold in the secondary money market b. funded by the secondary money market c. subject to approval by the trustee d. contains various discounts and premiums, and shows the investor’s yield 4. Which of the following is not an institutional lender? a. credit union b. commercial bank c. savings and loan d. insurance company 5. The Federal Home Loan Mortgage Corporation is referred to as: a. Fannie Mae b. Freddie Mac c. Ginnie Mae Unit 1 d. Grannie Mac 22

STUDENT REVIEW QUIZ UNIT 1 c. 6. Which of the following is not true regarding the mortgage loan broker: a. helps the borrower select the best financing of the options available b. helps the real estate agents pre-qualify prospective purchasers connects lenders who have funds to lend with borrowers d. facilitates connecting the trustee with the mortgage loan bankers 7. The banking industry had the most reform and changes during which period: a. 1600’s to 1863 b. 1850’s to 1900 c. Early 1900’s until late 1920’s d. From 1930 to 2000 Unit 1 23

STUDENT REVIEW QUIZ UNIT 1 of the following is not a type of real estate loan: a. conventional and government backed b. primary and secondary money market c. senior and junior liens d. original and refinance 9. Government regulates which except which of the following real estate loan matters a. jumbo loan b. fair housing c. credit reporting d. disaster issues with loan requirements 10. Real estate loans to purchase a home was originally: a. loans predominately made by family members b. originated in the secondary money market c. discounted to equal investor desired yields d. . established to set standards for lending practices set to the majority 8. Which Unit 1 24

ANSWERS TO STUDENT REVIEW QUIZ UNIT 1 1. C 2. C 3. A 4. A 5. B 6. D 7. D 8. B 9. A 10. A Unit 1 25

INSTRUCTOR POST TEST UNIT 1 1. T F Lending practices began only after the colonization of the United States. 2. T F The lending industry is heavily regulated by many state and federal laws. 3. T F Mortgage bankers and brokers have a stable share of the real estate loan market. 4. T F A loan from an institutional lender is considered a function of the primary market. Unit 1 26

INSTRUCTOR POST TEST UNIT 1 5. T F A third party originator to a loan is most often the principal. 6. T F The mortgage loan brokers primary job is to bring the buyer and seller together 7. T F A mortgage loan broker brings a borrower and lender together in exchange for a fee. 8. T F A mortgage loan broker may only use his or her own funds to make the loan. 9. T F An originator uses only funds from other sources, such as secondary market. 10. T F Using a mortgage loan broker gives the buyer less loan choices and higher fees. Unit 1 27

ANSWERS TO THE INSTRUCTOR POST TEST UNIT 1 1. F 2. T 3. F 4. T 5. F 6. F 7. T 8. F 9. F 10. F Unit 1 28