MBA Mortgage Banking Primer
Mortgage banking risk - ANS-why a secondary market is necessary, investors can sell
mortgages to offload risk
Loan production - ANS-originates the loan in the primary market: take loan app, process
documentation, underwrite file, prepare closing package, wire funds
4 functional areas - ANS-loan production, funding/warehousing/shipping, secondary
marketing, loan administration
funding/warehousing/shipping - ANS-Funds loan usually using a warehouse line of
credit, shipping performs QC check on loan and sends loan file to investor buying it
Secondary Marketing - ANS-where company interest rates are determined, manages
market risks, negotiates with investors
Loan Administration - ANS-servicing, managing admin duties until loan is paid,
answering questions of borrowers, managing escrows, payoffs, foreclosures
Investors - ANS-Fannie Mae, Freddie Mac, Federal Home Loan Bank, buy loans and
securitize them for sale on Wall Street as MBS
Main Street - ANS-Primary market
Fundamental risk to lender - ANS-borrower does not repay/default
First step lender takes to minimize default risk - ANS-taking security in property
Early 20th century mortgage industry characteristics - ANS-Lending was done by local
banks and savings and loan associations or by building loan associations
Mortgage servicing started because capital-rich east didn't want to deal directly with
Western borrowers
Typical loan term was 3-7yrs with balloon payment at end
Federal Housing Administration - ANS-Was created by Congress in 1934 and reduced
investment risk for lenders, housing starts rapidly increased
,What revolutionized mortgage industry? - ANS-FHA and 30 year mortgage term,
contributed to growth of home ownership
Why was FNMA created? - ANS-to bolster secondary market
When was first MBS issued - ANS-1968 by Ginne Mae, provided enhanced liquidity
Disintermediation - ANS-withdrawal of funds from a financial institution in order to invest
them directly
When did subprime lending start? - ANS-late 1990s
Financial disaster of 2008 - ANS-subprime mortgages defaulting and investor
withdrawal from the secondary market caused capital for mortgage lending to dissapear
Why was CFPB created? - ANS-to protect consumers and create transparency in
process, stricter lending made it hard for people with worst credit to get loans
Loan Production components - ANS-origination, processing, underwriting, closing
(origination and manufacturing of mortgage loans)
Funding - ANS-simple act of funding mortgage loan to borrower
Warehouse line - ANS-credit facility that utilizes the mortgage loan as collateral so
mortgage bankers can fund loan with line of credit rather than cash
Shipping - ANS-delivering mortgage loan to investor for purchase
Delivery - ANS-when full loan file is received by investor purchasing loan
Loan Administration components - ANS-loan servicing, servicing loan until it pays off,
collecting payments, managing escrow accounts, answering borrower questions
Federal Laws characteristics - ANS--honest timely concise info ab loan costs
-fair treatment of all consumers and protect their info
-regulate debt collection practices
State laws control - ANS--recordation of mortgage lien interests
-licensing of mortgage bankers
-enforcement of PPP
, -eviction process
Loan/municipal laws - ANS--register vacant properties, report vacancies
-protect abandoned homes
-clear code violations
Loan production regulations - ANS--protect and inform applicants during financing
process
-prohibit discrimination
-inform borrowers of terms and conditions of credit arrangement
Loan administration regulations - ANS--prohibit abusive actions in collection of
mortgage pmts
-provide statutory requirements for completing foreclosures
-properly administer escrow accounts
Secondary market regulations - ANS--make mtg credit available for low-moderate
income families
-ensure federally sponsored or regulated financial and housing institutions are
capitalized and operate in financially safe manner
-prohibit discriminatory practices in extension of credit
Regulatory agencies - ANS-US Dept of Treasury, Federal Reserve Board, SEC, HUD,
FTC, CFPB, NCUA
Dodd Frank Act of 2010 - ANS-provided many changes to industry, most notably the
CFPB-to make consumer financial products and services work for Americans through
safeguards, education, or regulation
RESPA - ANS-passed in 1978 and originally enforced by HUD, now CFPB
Provides clarity to borrower regarding settlement costs
TILA - ANS-originally enforced by Fed Reserve Board and now CFPB- provide
transparency in cost of credit and terms of loan
Loan estimate replaced - ANS-GFE and TIL (within 3 days of loan app)
Closing Disclosure replaced - ANS-HUD1 and final TIL
Mortgage banking risk - ANS-why a secondary market is necessary, investors can sell
mortgages to offload risk
Loan production - ANS-originates the loan in the primary market: take loan app, process
documentation, underwrite file, prepare closing package, wire funds
4 functional areas - ANS-loan production, funding/warehousing/shipping, secondary
marketing, loan administration
funding/warehousing/shipping - ANS-Funds loan usually using a warehouse line of
credit, shipping performs QC check on loan and sends loan file to investor buying it
Secondary Marketing - ANS-where company interest rates are determined, manages
market risks, negotiates with investors
Loan Administration - ANS-servicing, managing admin duties until loan is paid,
answering questions of borrowers, managing escrows, payoffs, foreclosures
Investors - ANS-Fannie Mae, Freddie Mac, Federal Home Loan Bank, buy loans and
securitize them for sale on Wall Street as MBS
Main Street - ANS-Primary market
Fundamental risk to lender - ANS-borrower does not repay/default
First step lender takes to minimize default risk - ANS-taking security in property
Early 20th century mortgage industry characteristics - ANS-Lending was done by local
banks and savings and loan associations or by building loan associations
Mortgage servicing started because capital-rich east didn't want to deal directly with
Western borrowers
Typical loan term was 3-7yrs with balloon payment at end
Federal Housing Administration - ANS-Was created by Congress in 1934 and reduced
investment risk for lenders, housing starts rapidly increased
,What revolutionized mortgage industry? - ANS-FHA and 30 year mortgage term,
contributed to growth of home ownership
Why was FNMA created? - ANS-to bolster secondary market
When was first MBS issued - ANS-1968 by Ginne Mae, provided enhanced liquidity
Disintermediation - ANS-withdrawal of funds from a financial institution in order to invest
them directly
When did subprime lending start? - ANS-late 1990s
Financial disaster of 2008 - ANS-subprime mortgages defaulting and investor
withdrawal from the secondary market caused capital for mortgage lending to dissapear
Why was CFPB created? - ANS-to protect consumers and create transparency in
process, stricter lending made it hard for people with worst credit to get loans
Loan Production components - ANS-origination, processing, underwriting, closing
(origination and manufacturing of mortgage loans)
Funding - ANS-simple act of funding mortgage loan to borrower
Warehouse line - ANS-credit facility that utilizes the mortgage loan as collateral so
mortgage bankers can fund loan with line of credit rather than cash
Shipping - ANS-delivering mortgage loan to investor for purchase
Delivery - ANS-when full loan file is received by investor purchasing loan
Loan Administration components - ANS-loan servicing, servicing loan until it pays off,
collecting payments, managing escrow accounts, answering borrower questions
Federal Laws characteristics - ANS--honest timely concise info ab loan costs
-fair treatment of all consumers and protect their info
-regulate debt collection practices
State laws control - ANS--recordation of mortgage lien interests
-licensing of mortgage bankers
-enforcement of PPP
, -eviction process
Loan/municipal laws - ANS--register vacant properties, report vacancies
-protect abandoned homes
-clear code violations
Loan production regulations - ANS--protect and inform applicants during financing
process
-prohibit discrimination
-inform borrowers of terms and conditions of credit arrangement
Loan administration regulations - ANS--prohibit abusive actions in collection of
mortgage pmts
-provide statutory requirements for completing foreclosures
-properly administer escrow accounts
Secondary market regulations - ANS--make mtg credit available for low-moderate
income families
-ensure federally sponsored or regulated financial and housing institutions are
capitalized and operate in financially safe manner
-prohibit discriminatory practices in extension of credit
Regulatory agencies - ANS-US Dept of Treasury, Federal Reserve Board, SEC, HUD,
FTC, CFPB, NCUA
Dodd Frank Act of 2010 - ANS-provided many changes to industry, most notably the
CFPB-to make consumer financial products and services work for Americans through
safeguards, education, or regulation
RESPA - ANS-passed in 1978 and originally enforced by HUD, now CFPB
Provides clarity to borrower regarding settlement costs
TILA - ANS-originally enforced by Fed Reserve Board and now CFPB- provide
transparency in cost of credit and terms of loan
Loan estimate replaced - ANS-GFE and TIL (within 3 days of loan app)
Closing Disclosure replaced - ANS-HUD1 and final TIL
