Governments Role in Mortgage Markets

1
Chapter 5

• Governments Role in Mortgage Markets

2
Origins of the Federal Governments Involvement
in the Mortgage Market

• Massive mortgage loan defaults and panic
  withdrawals during early 1930s
• Under FDR, legislators revamped countrys
  financial system

3
Secondary Mortgage Market Agencies

• Federal National Mortgage AssociationFannie Mae
• Government National Mortgage AssociationGinnie
  Mae
• Federal Home Loan Mortgage Corporation (FHLMC)

4
Federal Laws Regulating Mortgage Lending

• Truth in Lending Act (1969)
• Required disclosure of specified information in
  connection with all consumer credit transactions
  implemented by Regulation Z
• Those required to comply must provide each
  borrower with a statement that shows the APR and
  includes the amount and nature of all finance
  charges
• Reg Z defines finance charge
• Reg Z requires lenders to express the cost of
  borrowing as an Annual Percentage Rate (APR)
  based on actual loan proceeds
• Individuals have the right to rescind

5
Federal Laws Regulating Mortgage Lending

• Equal Credit Opportunity Act intended to ensure
  that no credit applicant shall be denied the
  credit he or she needs or wants on the basis or
  characteristics that have nothing to do with his
  or her credit worthiness
• Creditors must notify applicants of decisions
  within 30 days of receipt of application
• On request, applicants must be informed of
  reasons for any adverse decision
• Lenders cannot consider factors that are based on
  race, color, national origin, religion, age,
  gender, or marital status

6
Federal Laws Regulating Mortgage Lending

• Home Mortgage Disclosure Act (HMDA)
• Every depository lending institution with a home
  office or a branch office in a metropolitan
  statistical area (MSA) must compile a report that
  reveals the extent to which mortgage loans are
  being made within the MSA, compared with loans
  being made outside the MSA
• Purpose is to discourage redlining

7
Federal Laws Regulating Mortgage Lending

• Real Estate Settlement Procedures Act (RESPA)
• To ensure that both buyers and sellers receive
  information on settlement costs

8
Mainstreaming the Mortgage Market

• Mortgage loans are originated in the primary
  mortgage market existing loans are bought and
  sold in the secondary mortgage market
• Fannie Mae facilitates housing finance by
  enhancing the supply or mortgage funds commits
  to buy mortgage notes for future delivery makes
  some bulk purchases or mortgages loans from
  Ginnie Mae
• Ginnie Mae Ginnie Mae passthroughs
• Freddie Mac mortgage participant certificates
  and guaranteed mortgage certificates

9
Secondary Mortgage MarketFreddie Mac and Ginnie
Mae

• Immediate delivery commitmentsmortgages for
  immediate delivery are bought at auction, with
  commitments going to lenders whose bids offer
  Freddie Mac the highest yields
• Forward commitmentsFreddie Mac also sells
  commitments to purchase mortgage loans for
  delivery six months and eight months in the
  future
• Mortgage-backed securities (MBS) are not a Ginnie
  Mae monopolymortgage bankers and large
  institutional lenders are selling securities
  backed by a pool of conventional mortgages