Notes

Savings associations
fka "savings and loans" (S&L), est by govt for long-term, single-family home loans.
1980s, deregulation led to savings and loan crisis. Though savings and loans are federal and state chartered, in 1989 FIRREA posed new restrictions.
The Office of Thrift Supervision now regulates all federal and state chartered savings and loans.

National banks and federal savings associations are chartered and regulated by the Office of the Comptroller of the Currency.
Savings associations must be chartered—legally authorized to undertake the objectives of—at state or federal level. If federally chartered, FA or Federal must appear in their association name.

The Federal Home Loan Bank System
created in 1932 to assist in the recovery of economy—devastated by the Depression—by improving the availability of funds for home ownership. Today, the System, comprised of 12 district Federal Home Loan Banks, is the support system for the nation's savings associations.

Commercial Banks
Most mortgages created by commercial banks are sold to buyers on secondary market, but commercial banks do make conventional, FHA, and VA mortgage loans. Commercial banks chartered by state or fed. Fed commercial banks are referred to as national banks.
specialize in construction loans for both residential and commercial projects, as well as home equity loans
National banks fall under the jurisdiction of the Comptroller of the Currency of the Treasury Department, which defines the rules under which they must operate, and they must display the word National or NA in their name.

The Federal Reserve System
central banking system of United States; seven-member Board of Governors; 12 Reserve Banks located in major cities.
The President appoints the Board of Governors, confirmed by the U.S. Senate.

The Fed's duties include the following:
Conducting the nation's monetary policy
Supervising and regulating banking institutions and protecting the credit rights of consumers
Maintaining the stability of the financial system
control the amount of money in circulation

The Federal Reserve has three main methods to control the amount of money in circulation in the U.S.:
1- Open-market operations: purchase and sale of U.S. Treasury and federal agency securities. This is the most effective method for controlling the monetary supply and long term interest rates.
2- Discount rate: This is the rate the Fed charges member banks for borrowing money from the Fed. This method affects short term rates primarily.
3- Reserve requirements: This is the amount of funds the institution must hold in reserve against deposit liabilities. This method affects the amount of money that a lender can loan, which controls the amount of money in circulation.

FDIC
insures funds deposited in banks in amounts up to $100,000 per depositor. It is funded by fees that banks pay for coverage and from investments made with those funds. Almost all banks in the country are covered by the FDIC.

Credit Unions
financial institutions controlled by their members - focus on home equity loans

The National Credit Union Administration (NCUA), an independent agency of the United States Government, regulates, charters, and insures the nation's federal credit unions. In addition, NCUA insures state-chartered credit unions that desire and qualify for federal insurance. In some states, state-chartered credit unions are required by state law to be federally insured.

The SAFE Mortgage Licensing Act
enhance consumer protection and reduce fraud
encourages states to establish minimum standards for licensing and registration of state-licensed mortgage loan originators
and for the Conference of State Bank Supervisors (CSBS) & American Assoc of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry.
The SAFE Act sets a minimum standard for licensing and registering mortgage loan originators

Consumer Financial Protection Bureau (CFPB) administers and enforces SAFE act

The SAFE Act requires state-licensed MLOs to pass a written qualified test, to complete pre-licensure education courses, and to take annual continuing education courses. The SAFE Act also requires all MLOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check; and state-licensed MLOs to provide authorization for NMLS to obtain an independent credit report.

Any individual who, for compensation or gain, takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan application must be licensed or registered as a Mortgage Loan Originator.


Mortgage Loan Originator (MLO)
Take 20 hours of pre-licensure education courses approved by NMLS&R. The education must include:
3 hours of federal law and regulations
3 hours of ethics, which must include fraud, consumer protection, and fair lending
2 hours of standards on non-traditional mortgage lending

Licensing Standards: All state-licensed Mortgage Loan Originators must meet the following standards:
Never had a loan originator license revoked;
Has had no felonies in the past seven years;
Never had a felony involving fraud, dishonesty, breach of trust or money laundering;
Demonstrates financial responsibility and general fitness; and
Scores 75% or better on a national test created by NMLS&R.

The test will include:
Ethics
Federal law and regulation
State law and regulation
Federal and state law and regulation pertaining to fraud, consumer protection, nontraditional mortgages, and fair lending; and

Takes eight hours of continuing education annually. The education must include:
3 hours of federal law and regulations
3 hours of ethics, which must include fraud, consumer protection, and fair lending
2 hours of standards on non-traditional mortgage lending; and
The MLO must maintain licensure through NMLS&R.

Mortgage Bankers
Mortgage banks control the greatest share of the primary lending market. They manage capital, not from personal deposits, but from large investors like insurance companies and retirement funds. Mortgage banks, originally known as mortgage companies, will also borrow money from commercial banks to finance loans. All of these loans are then sold on the secondary market, because mortgage banks do not hold loans in portfolio.

Almost all loans offered by mortgage bankers are fixed rate, and some of them operate entirely from the proceeds of secondary-market sales, selling their loans to insurance companies and retirement funds, as well as to buyers like Fannie Mae and Freddie Mac (discussed in the next lesson).

mortgage broker
licensed professional who originates mortgage loans that are financed by one of several lenders the broker works with
act as mediators between lending institutions and borrowers
cannot approve or reject loans
work with prospective borrowers to get applications completed and submitted
receive a commission

Seller Financing
contract for deed - allows the buyer to take possession of the property during the term of the contract while not acquiring the actual title until the obligation of the contract has been met
purchase money mortgage - works the same as any bank mortgage, with the buyer holding title and the seller having an in-depth note and mortgage lien on the property

Other Private Lenders
lenders other than mortgage bankers
ex. insurance companies and mutual savings banks
often considered non-conventional (as opposed to commercial banks) investors because they do not invest in real estate mortgages as a primary function
This is widespread in today's financial markets, and is used to fill gaps for borrowers, especially in the commercial development realm, who would not otherwise find mortgage loans

Government Programs
As well as the FHA and VA government programs that assist in providing home loans to buyers, the Rural Housing Service provides similar services to farmers, rural residents, and rural communities. The services offered by this agency of the U.S. Department of Agriculture are much the same as the previously-mentioned government agencies.