California Real Estate Finance Bond, McKenzie, Fesler

1
California Real Estate FinanceBond, McKenzie,
Fesler BooneNinth Edition

• Chapter 2
• Institutional Lenders

2
Preview

• Institutional Lenders

• Private Lenders

• Highly regulated
• Loan thru financial intermediaries
• Not subject to usury laws
• Qualified to make DVA and FHA loans
• Secondary market available
• PMI requirements
• Lock in rates

• Free from regulations
• Loan their own funds
• Limits on rates of interest
• Not qualified
• Sell to another private lender
• None
• Varies

3
(No Transcript)
4
Objectives

• After completing this chapter, you should be able
  to
• Demonstrate how savings deposits become real
  estate loans.
• Differentiate institutional from
  non-institutional lenders.
• List three types of institutional lenders and
  briefly explain the differences between them.
• Discuss several of the trends facing
  institutional lenders.
• Decide when to use one institutional lender over
  another.
• List five regulatory agencies that supervise the
  operations of institutional lenders.

5
Outline

• Savings Banks
• Commercial Banks
• Life Insurance Companies
• Mutual Savings Banks
• Depository Institutions and Monetary Control Act
• Pension and Retirement Funds
• Government Regulatory Agencies
• Trade Associations

6
Savings Banks (Slide 1 of 2)

• Financial intermediary
• Accepts savings
• Invests savings in real estate
• Mutual institutions
• Share certificates or receipts
• Capital stock institutions
• Shares of stock
• State chartered
• Licensed by State of California
• Federal chartered
• Licensed by Federal Housing Finance Board
• Use Federal in title

7
Savings Banks (Slide 2 of 2)

• Lending characteristics
• Majority of assets must be in real estate
• lt90 loan to value (LTV) ratio
• Exceptions for FHA or DVA
• 30 (maybe 40 or 15) year terms
• Interest rates match those of commercial banks
• Single-family, owner-occupied usually
• Combo loans (construction and permanent
  take-out financing)
• Collateral loans (secured by other than real
  estate)

8
(No Transcript)
9
Commercial Banks (Slide 1 of 3)

• Demand Deposits (DDA)
• Not available for loans
• Time Deposits (TDA)
• Available for loans
• State chartered
• Stock corporations
• Regulated by California Department of Financial
  Institutions
• Federal chartered
• Stock corporations
• Licensed by the Comptroller of the Currency
• Use National in title

10
Commercial Banks (Slide 2 of 3)

• Lending characteristics
• FHA DVA loans with more liberal loan-to-value
  ratios
• Construction loans (24 60 months)
• Take out agreements usually required
• Property in proximity to bank
• Home improvement and home equity loans
• Swing loans
• AKA Bridge loans or Interim loans
• For paying for new home before selling old home

11
Commercial Banks (Slide 3 of 3)

• Trends
• Larger banks due to mergers and acquisitions
• Or TBTFs (Too Big To Fail)
• Interstate banking
• Longer maturities
• Diversification
• Commercial paper
• Mortgage-backed securities
• Municipal revenue bonds
• Insurance Securities
• Real Estate transactions
• Electronic banking

12
Community Reinvestment Act

• All federal financial institutions report on
• Race
• Gender
• Income
• Census tract

• Grade institutions within the community on
• Knowing credit needs
• Informing about credit services
• Involving directors
• Participating in government-insured, guaranteed
  or subsidized loans
• Distributing credit application, approvals and
  rejections
• Offering range of mortgages

13
Home Mortgage Disclosure Act

• Borrower must report
• Ethnicity
• Race
• Sex
• On loan application (1003)
• If not reported, lender notes the information on
  the basis of visual observation or surname

14
Life Insurance Companies (Slide 1 of 2)

• Mutual companies
• Owned by insured
• Stock companies
• Owned by stockholders
• Lending characteristics (broadest of
  institutional lenders)
• State regulated
• Mainly commercial properties
• lt80 loan-to-value ratio
• 30 year term with prepayment penalty (lock-in
  clause)
• Lower interest rates
• Large loans (gt1M)
• Minimal construction loans, if any, prefer take
  out financing
• Use loan correspondents

15
Life Insurance Companies (Slide 2 of 2)

• Trends
• Equity conversion positions
• Convert loan to ownership
• Upfront equity participations
• Share of income produced by property
• Variable and fixed annuities
• Provide large sums for reinvestment
• Holding companies and joint ventures
• Allow for full gamut of interrelated lending
  activities

16
Mutual Savings Banks

• Mainly in northeastern U.S.
• None in California
• 50 90 loan-to-value

17
Depository Institutions and Monetary Control Act

• Phased out restrictions on interest rates lenders
  pay depositors
• Federal thrift institutions can invest in
• Consumer loans
• Commercial paper
• Corporate debt securities
• Junior trust deeds
• Federal savings institutions can make
• Acquisitions, development construction loans
• Removes geographical lending restrictions
• Removes dollar limitations on residential loans

18
Pension and Retirement Funds

• Billions in assets
• Administrators have yet to tap the real estate
  market
• PERS (Public Employees Retirement System
• STRS (State Teachers Retirement System
• 100 financing
• Contributions are down payment
• 95 LTV
• IRAs
• Tax deferred contributions for employees
• Keogh Plans
• Tax deferred contribution for self-employed

19
Government Regulatory Agencies (Slide 1 of 2)

• Created by Financial Institutions Reform,
  Recovery and Enforcement Act (FIRREA)
• Office of Thrift Supervision
• Replaces Federal Home Loan Bank Board
• Chief regulator of all savings banks and SLs
• Savings Association Insurance Fund (SAIF)
• Replaces Federal Savings and Loan Insurance
  Corporation (FSLIC)
• Managed by FDIC
• Federal Deposit Insurance Corporation
• Insures accounts up to 250K
• Manages the SAIF and Bank Insurance Fund

20
Government Regulatory Agencies (Slide 2 of 2)

• Federal Housing Finance Board
• Oversees lending by 12 regional Federal Home Loan
  Banks
• Provides statistical data per Housing and
  Economic Recovery Act of 2008
• Federal Reserve Bank Board
• Oversees Federal Reserve System
• Regulates commercial banks
• Federal Home Loan Mortgage Corporation
• Freddie Mac
• Secondary mortgage market (Chapter 7)
• Office of the Comptroller of the Currency
• Charters and oversees national and foreign banks
• California Department of Financial Institutions
• Under California Business, Transportation and
  Housing Agency headed by Financial Commissioner
• Supervises all state chartered banks

21
Trade Associations

• California League of Savings Institutions
• Mortgage Bankers Association of America
• American Bankers Association
• National Association of Independent Mortgage
  Bankers
• Institute of Life Insurance
• National Association of Mortgage Brokers

22
Questions and Comments?