Mortgage Industry Overview Chapter 4
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Questions and Answers

A home buyer, loan originator, mortgage lender, and loan servicer are all part of the residential mortgage process.

True (A)

The loan originator, lender, and servicer are always part of the same company.

False (B)

The mortgage lender always services the loan.

False (B)

Retail lenders are a type of loan originator.

<p>True (A)</p> Signup and view all the answers

The mortgage industry has not experienced any major crises in its history.

<p>False (B)</p> Signup and view all the answers

Which of the following best describes the role of a loan originator in the mortgage process?

<p>They arrange the loan between the borrower and lender. (C)</p> Signup and view all the answers

What is a key difference between a mortgage lender and a loan servicer?

<p>The lender funds the loan, and the servicer collects and processes payments. (C)</p> Signup and view all the answers

Which entity is responsible for providing the actual financial capital for a mortgage loan?

<p>The mortgage lender (B)</p> Signup and view all the answers

What distinguishes a 'retail lender' within the mortgage industry?

<p>They directly interact with borrowers and sell their loan products. (A)</p> Signup and view all the answers

What is the primary role of an intermediary who brings together lenders and borrowers for a commission?

<p>Loan originator (A)</p> Signup and view all the answers

A non-profit organization that provides banking services for a labor union is known as a:

<p>Credit union (D)</p> Signup and view all the answers

Which legislation was enacted in response to the S&L crisis, imposing new rules on savings and loan associations?

<p>Financial Institutions Reform, Recovery, and Enforcement Act (C)</p> Signup and view all the answers

What term is used to describe a period when housing prices increase to unsustainable levels?

<p>Housing bubble (A)</p> Signup and view all the answers

What is a key characteristic of a subprime loan?

<p>Less stringent underwriting standards for buyers with credit problems (C)</p> Signup and view all the answers

What term is often used to collectively describe savings and loan institutions?

<p>Thrifts (D)</p> Signup and view all the answers

Which of the following best describes a loan originator's role in the mortgage process?

<p>Helping a buyer with the loan application (C)</p> Signup and view all the answers

What happens after a mortgage lender approves and funds a loan?

<p>The lender may keep or sell the loan. (A)</p> Signup and view all the answers

Which event led to the passage of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)?

<p>The savings and loan crisis (A)</p> Signup and view all the answers

What was the primary goal of the Troubled Asset Relief Program (TARP)?

<p>To address financial problems of institutions with troubled assets (C)</p> Signup and view all the answers

In 2008, what action did the government take regarding Fannie Mae and Freddie Mac?

<p>They were placed into conservatorship (B)</p> Signup and view all the answers

Flashcards

Mortgage Process

The process of getting a mortgage, including pre-approval, application, underwriting, closing, and loan servicing.

Loan Originator

A person or company that helps borrowers find and get approved for a mortgage loan.

Depository Institutions

Lenders that are part of financial institutions like banks and credit unions.

Mortgage Companies

Companies that specialize in originating and selling mortgages

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The Great Depression

The event that led to increased government involvement in the mortgage industry, helping to stabilize the housing market.

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Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)

A 1989 federal law passed in response to the Savings and Loan crisis, aiming to reform the thrift industry and enhance future protections.

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Troubled Asset Relief Program (TARP)

A government program created in 2008 to rescue struggling financial institutions by purchasing 'toxic assets' related to the mortgage crisis.

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Federal Housing Administration (FHA)

The government agency that provides mortgage insurance to protect lenders against default, encouraging longer-term loans for homeowners.

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Federal National Mortgage Association (Fannie Mae)

A government-sponsored enterprise (GSE) that buys and sells mortgages, enhancing liquidity in the mortgage market.

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Conservatorship

A situation where the government takes over the management of an organization, often due to financial instability.

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Balloon Payment Mortgage

A type of mortgage with a large, final payment due at the end of the loan term.

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Credit Union

A financial institution owned by its members, often associated with labor unions or specific groups. They provide banking services to members.

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Thirty-Year Fixed-Rate Mortgage

A type of mortgage with a fixed interest rate over a period of 30 years.

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Insolvency (in the context of financial institutions)

A situation where a financial institution's assets are worth less than its liabilities, risking insolvency.

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Housing Bubble

A period where housing prices rise rapidly and unsustainably, often fueled by speculation and loose lending practices. When the bubble bursts, prices plummet, leading to defaults and financial hardship for borrowers.

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Subprime Loan

A type of loan offered to borrowers with poor credit history or limited income. These loans carry higher interest rates and fees to compensate for the increased risk.

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Mortgage Lender

A type of financial institution that specializes in making mortgage loans. They can be either commercial companies or government-sponsored entities.

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Thrifts

Savings institutions, such as savings and loan associations, that primarily offer mortgage loans and savings accounts.

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Study Notes

Learning Objectives

  • Students should be able to explain the basic mortgage process
  • Students should be able to distinguish between different types of loan originators and how they help borrowers
  • Students should be able to describe government regulations affecting loan originators
  • Students should be able to list the different types of mortgage lenders and how their businesses have changed over time
  • Students should be able to discuss important historical events in the mortgage industry including the Depression and the Savings and Loan crisis, and how the government responded
  • Students should be able to summarize the factors leading up to the mortgage and financial crisis and the impact it may have on the mortgage industry

Suggested Lesson Plan

  • Students should be given Exercise 4.1 to review the previous chapter
  • The instructor should provide a brief overview of Chapter 4, and review the learning objectives for the chapter

Present Lesson Content

  • Description of the Mortgage Industry
  • Basic steps in the mortgage process
  • Loan origination
  • Types of loan originators
  • Government regulation
  • Mortgage Lenders
  • Depository institutions
  • Mortgage companies
  • Alternative sources of funding
  • Government Intervention in Mortgage Lending
  • The Depression
  • Savings and loan crisis
  • The Mortgage and financial crisis

Chapter 4 Outline: The Mortgage Industry

  • Basic Steps in Mortgage Process
    • The process involves a home buyer, loan originator, mortgage lender, and loan servicer
    • The entities may not all be part of the same company
    • Often, someone other than the lender services the loan
  • Loan Origination
    • Retail lenders
      • Deal directly with borrowers, who deal with loan officers or loan originators
      • Wholesale lenders
      • Use intermediaries, such as brokers or correspondents

Types of Mortgage Lenders

  • Banks
  • Savings banks
  • Credit unions
  • Mortgage companies

Government Intervention in Mortgage Lending

  • The Depression
  • The government created the Federal Housing Administration to help stabilize the mortgage industry
  • The FHA provided insurance that protected lenders against defaulting borrowers and made it easier for them to provide long-term loans
  • The Savings and Loan Crisis
  • Deregulation of the 1980s allowed S&Ls to make riskier investments
  • Many S&Ls failed and needed a large government bailout in the 1980s
  • The government created new regulations to help stabilize the industry

The Mortgage and Financial Crisis

  • Factors contributing to the crisis
    • Growth of the subprime market
    • Relaxation of underwriting standards
    • Looser rules and lax oversight
  • Foreclosure crisis
    • Home values declined
    • Many homeowners had mortgages greater than the value of their property

Government Response to the Mortgage and Financial Crisis

  • Government actions to address the crises
    • Housing and Economic Recovery Act
    • Takeover of Fannie Mae and Freddie Mac
    • Troubled Asset Relief Program
    • 2010 Dodd-Frank Act

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Related Documents

The Mortgage Industry PDF

Description

This quiz covers the basic mortgage process, types of loan originators, and government regulations affecting them. Additionally, it discusses historical events such as the Savings and Loan crisis and the factors leading up to the financial crisis, providing a comprehensive understanding of the mortgage industry.

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