Mortgage Overview

United States Mortgage Industry Overview …

What is Mortgage? Mortgage is a loan to finance the purchase of real estate, usually with specified payments and interest rates. Lien is a legal claim against a property.

Collateral is the subject property pledged by a borrower to secure a loan, and subject to seizure in the event of default. Appraisal is written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

Types of Mortgage





Non-conventional

– Refers to FHA and VA loans.

FHA & VA

- A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Conventional Mortgages

- Refers to home loans other than government loans (VA and FHA).

Conforming Loans

– Loans which conform to the guidelines set by the federal agencies.

Non-conforming

– Loans which does not conform to the guidelines set by the federal agencies.

Fannie Mae and Freddie Mac

- They are two stockholder-owned corporations who purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.

Mortgage Life-cycle Mortgage Lifecycle

n(Wholesale)

Prequalification

Preapproval

Broker

$

(Retail)

Originationand and

Preapproval

Lender

Account Executive

Loan Officer

Closing Underwriting

Prequalification Prequalificatio

Prequalification

Underwriting

Closing

Funding Market

Secondary

Borrower

LoanOrigination

Loan

Primary Market

Funding

Servicing

Investors

Mortgage Life-cycle Loan Origination

Prequalification

Primary Market

Underwriting

Closing

Funding

Servicing and Secondary Market

Mortgage Channels

Wholesale

Retail

Correspondent

Mortgage Products Fixed rate mortgage - A mortgage in which the interest rate does not change during the entire term of the loan.

Adjustable rate mortgage - A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index.

Balloon Mortgage - A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Jumbo loans - A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits.

Piggyback loans - An alternative to private mortgage insurance. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate.

HELOC - A secured line of credit using the available equity in the applicant's property as collateral.

Ratios LTV (Loan to Value)

= ( Loan Amount / Appraised Value or Sales Price whichever is less ) * 100%

CLTV (Combined Loan to Value)

= (( Loan Amount + Sub-financing ) / Appraised Value or Sales Price whichever is less ) * 100%

DTI (Debt to Income)

= ( Gross Monthly Debt / Gross Monthly Income ) * 100

Front Ratio (Top Ratio)

= ( Monthly Housing Costs / Monthly Income) * 100%

Back Ratio Ratio)

= (( Monthly Housing Costs + Other Monthly Debts) / Monthly Income ) * 100%

(Bottom

Mortgage Terminologies Prime Loan & Non-prime Loan

- Non-prime mortgage lending targets a credit score market that falls between Prime lending (also known as A-Paper lending) and Subprime lending (known as D-Paper lending). Many mortgage lenders measure potential borrowers’ loan risk by their credit score, known as a FICO score.

1003

- The number assigned to the form all potential customers must complete to apply for a home loan. This application is commonly referred to as "the 1003" and is produced by the Federal government.

GFE (Good Faith Estimate)

- A disclosure required under the Real Estate Settlement Procedures Act (RESPA) that must be given to all mortgage loan applicants at the time of application. The disclosure is an estimate of all settlement charges likely to be incurred at closing.

Document Types

- There are different kind doc types such as Full Doc, Limited Doc, NINA, NIVA, No Doc, No Doc with Assets, No Ratio, SISA, SIVA etc.

Mortgage Terminologies Prequalification

- The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Preapproval

- A guarantee that a lender will loan a potential buyer a fixed amount as long as s/he buys a home within a certain time frame and the house appraises for the amount of money for which s/he qualifies.

Mortgage Product Examples

Alt A 30 Yr Fixed Alt A 30 Due in 15 Balloon Alt A 5/6 LIBOR IO Jumbo PIG 5/6 IO LIBOR HELOC 1st 5/10 IO A MINUS 2yr/6 mo LIBOR ARM FHA 30 Yr Fixed

Mortgage Terminologies Forbearance

Foreclosure

A postponement of payments or a reduction in monthly payment amounts for a limited and specified period of time during which a borrower is willing but unable to make loan payments. A forbearance may also be an extension of the repayment period. All borrowers are charged interest during forbearance.

Legal process by which a mortgagor of real property is deprived of his interest in that property due to failure to comply with terms and conditions of the mortgage.

Charge-off

Bankruptcy

A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed it from the books for accounting purposes even though the debtor still owes payment in full.

By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities.

Mortgage Terminologies Title A legal document evidencing a person's right to or ownership of a property.

Title Insurance Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Mortgage Insurance Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent.

Mortgage Terminologies Homeowner’s association A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. HUD A federal department active in a variety of national housing programs including urban renewal and public housing.

American Land Title Association (ALTA) An organization composed of title insurance companies, which has adopted certain insurance policy forms to standardize title insurance coverage on a national basis.

Mortgage Terminologies

ECOA A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Escrow An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.

Truth in Lending A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Earnest money deposit A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

Mortgage Terminologies Subordinate financing Any mortgage or other lien that has a priority that is lower than that of the first mortgage. Equity A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens. Discount Points The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent of the loan amount Closing Cost Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Nonrecurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. PITI This stands for principal, interest, taxes and insurance.

Mortgage Terminologies Amortization The process of fully paying off indebtedness by installments of principal and earned interest over a definite time. Prepayment Penalty A fee that may be charged to a borrower who pays off a loan before it is due. Refinance (Refi) The process of paying off one loan with the proceeds from a new loan using the same property as security. Cash-out Refinance When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as ”cash out refinance." Cap The maximum allowable interest rate increase for adjustable rate mortgages.

Mortgage Terminologies Cost of funds index (COFI) One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages.

LIBOR The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

Credit History A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

Credit Score A credit score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit score is the Fair Isaac or FICO score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in a credit report.

Credit Repository An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit. The three major credit repositories are Equifax, Experian and TransUnion.

Margin The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

Credit Agencies and Interface Credit reporting agencies play an important part in the information gathering process of any Credit Department. Commerce Velocity has established partnerships with some of the Credit Agencies in the financial services industry. Some of them are: First American Credco Certified Credit Reporting Land America Land Safe Advantage Credit Kroll Factual Data NCO Credit Services Informative Research

Commerce Velocity uses MISMO 2.1 (Mortgage Industry Standards Maintenance Organization Inc.) as the interface for Request and Response.

CV Products

CQAdmin Broker Portal Underwriting Workbench

CQAdmin CQAdmin has three setups: Security Setup

- Using Security Setup we can create a new Account with its Groups, Users and Parameters. We can setup different Sub-Organizations of that Account. The Interface for that Account can be selected and different Workflow status can be added.

Decision Setup

- Using Decision Setup we can add or modify derived/decision Parameters and Conditions. There are six categories of Conditions .viz. Asset, Credit, Income, Property, Purchase and Title. Lookups and Power Lookups can be used to update Rules and Rulesets correspondingly. Guidelines can be created using Rules and Rulesets. We can also add Compensating Factors. Rule Manager enables us to see the entire range programs and products and the guidelines associated with them.

Product Setup

- Using Products Setup we can add, modify and delete different Programs and Products.

Broker Portal

In Broker Portal, brokers can submit loans, prequalify the borrowers and get a loan AU approved.

For AU approval, Fannie Mae file can be imported or the 1003 can be filled up manually.

It also shows the loans in pipeline.

Underwriting Workbench

Using Underwriting Workbench, underwriters can underwrite a loan, waive exceptions and conditions to make a referred product approved. They can also check the loans in the pipeline.

CQDS (Credit Quality Decision Suite) Web Services The following operations are supported in CQDS web service : - GetApplication

- ReaccessDecision

- GetCRDecisionString

- GetCreditSummaryString

- Authenticate2

- GetDecision2

- ChangePassword2

- GetCreditReportString

- Authenticate

- GetGuidelineList2

- GetCRDecision

- GetGuidelineDetail

- GetCreditSummary

- GetResult

- ChangePassword

- GetCreditSummaryElement

- GetGuidelineDetail2

- ResetAppVar

- GetGuidelineList

- GetCreditSummaryXML

- GetPricing

- SaveCreditReport

- GetDecision

- GetCreditReport

Types of Loan  Government – – – – –

Loan

FHA Loans VA Loans RHS Loan Programs Ginnie Mae State and Local Housing Programs

Types of Loans  Conventional – –

Conforming Loan. Non Conforming Loan.  B/C

– – – –

Loans

Loans.

Jumbo Loans. Fixed Rate Mortgages. Balloon Loans. Adjustable Rate Mortgages. New interest rate = index + margin

ARM Terms        

Margin Negative Amortization Cap Payment Recast Period Lifetime Cap Initial Rate Fully Indexed Rate Minimum Payment Adjustment Period Minimum Payment Change Cap

Combined(Hybrid) Loans    

Fixed-period ARM. Two-Step Mortgage. Convertible ARMs. Graduated Payment Mortgages (GPMs)

Overview GOVERNMENT

CONVENTIONAL

FHA

Conforming (Fannie/Freddie)

Non-Conforming

VA

A paper (credit)

B,C,D Paper

RHS

Jumbo Loans

State/Local Housing FIXED

ADJUSTABLE

SAMPLE COMBINATIONS

Various Terms

Index

Fixed-Period ARM

15 vs. 30 Savings

Caps - Lifetime/Periodic

Two-Step Mortgage Convertible ARM Graduated Payment Mortgage BuyDown Mortgage

Questions or queries Contact Extn.

: Aparajita Roy : 1049