finance, US mortgage industry

1. US
MORTGAGE( U N I T 5 )

2. • A debt instrument, secured by the collateral of specified real
estate property, that the borrower is obliged to pay back with a
predetermined set of payments.
• Over a period of many years, the borrower repays the loan (+)
interest, until he/she eventually owns the property, free and
clear.
• If the borrower stops paying the mortgage, the bank can
foreclose.
MORTGAGE

3. •Foreclosure is a legal process in which a lender (mortgagee)
attempts to recover the balance of a loan from a borrower (mortgagor)
who has stopped making payments (EMIs) to the lender by forcing the
sale of the asset used as the collateral for the loan.
•Formally, a mortgage lender or lien-holder, obtains a termination of
the borrower's equitable right of redemption, either by court order
or by operation of law (after following a specific statutory procedure).
FORECLOSURE

4. •Equitable redemption is the right of a defaulting mortgagor to
reclaim property by paying all past due mortgage payments
anytime prior to foreclosure.
•Statutory redemption, by contrast, begins at the point of
foreclosure and requires that the defaulting mortgagor pay the
full foreclosure sale price
REDEMPTION & FORECLOSURE

5. http://www.investopedia.com/terms/m/mortgage.asp

6. TYPES OF
PROPERTIES
MULTI-FAMILY
HOUSING
> 1UNIT / FAMILY
• house with basement suite (2 units),
• a duplex (2 units),
• a triplex (3 units)
SINGLE FAMILY
HOUSING
1 UNIT, 1 FAMILY
• Detached house,
• Condominium,
• Row-house

7. Row Houses House with basement suite
Condominium Duplex

8. MORTGAGE
FORWARD REVERSE
TYPES OF MORTGAGES

9. FORWARD
MORTGAGE
REFINANCE
• FHA REFINANCE
• VA REFINANCE
• CONVENTIONAL
REFINANCE
PURCHASE
• FHA PURCHASE
• VA PURCHASE
• CONVENTIONAL
PURCHASE

10. •Refinancing is to the replacement of an existing debt
obligation with another debt obligation under different terms.
•If the replacement of debt occurs under financial distress,
refinancing might be referred to as debt restructuring.
REFINANCING

11. 1.To take advantage of a better interest rate (↓ EMI or n)
2.To consolidate other debt(s) into one loan, contingent on
interest rate differential and fees. If high-interest debt, such
as credit card debt, is consolidated into the home mortgage,
the borrower is able to pay off the remaining debt at
mortgage rates over a longer period.
REASONS FOR REFINANCING

12. 3. To adjust for drop in income, reduce monthly repayment
amount (often for a longer term) contingent on interest rate
differential and fees
4. To alter or reduce risk (variable-rate to a fixed-rate loan)
5. To free up cash (often for a longer term) contingent on
interest rate differential and fees
REASONS FOR REFINANCING

13. • FHA Loan is a mortgage issued by
federally qualified lenders that is insured
by the Federal Housing Administration
(FHA).
• These loans are designed for low to
moderate income borrowers who are
unable to make a large down payment

14. • FHA mortgage insurance provides lenders
with protection against losses resulting
from home owners defaulting on their
mortgage loans.
• The lenders bear less risk because FHA
will pay a claim to the lender in the event
of a home owner's default.
• Borrower pays MIP (mortgage insurance
premium) for FHA loans

15. VA
MORTGAGE
PROGRAM
• A mortgage loan program established by
the United States Department of
Veterans Affairs to help veterans and
their families obtain home financing

16. CONVENTIONAL
MORTGAGE
PROGRAM
• A conventional mortgage is offered by
a bank and is not insured by the
federal government.
• This makes it a slightly higher risk for
the bank, so the qualifications are
more strict.
• For example, it may require a higher
down payment or a lower debt to
income ratio.

17. FHA TYPES
1. RATE AND TERM REFINANCE
2. RE HAB (203K) REFINANCE
3.STREAMLINE REFINANCE
4. CASH OUT REFINANCE
5. FHA JUMBO LOANS

18. 1. FHA RATE AND TERM REFINANCE
• The simplest type of mortgage refinance is called a
“rate and term refinance”
• The borrower changes the interest rate and term of the
loan but not the loan amount.
• It is also known as “no cash-out refinance”.

19. 2. REHAB FHA OR 203K MORTGAGE

20. 1.The FHA 203(k) loan is a unique product that allows
homeowners who don't have a lot of cash to buy a property
which is in need of repairs.
2.An FHA 203k loan is a loan backed by the Federal Govt. &
given to buyers who want to buy a damaged or older home &
intend to do repairs on it.
e.g. If you want to buy a home that needs a brand-new
bathroom & kitchen, an FHA 203k lender gives the money to
buy (or refinance) the house (+) money to do the necessary
renovation to the kitchen & bathroom.

21. There are two main types of FHA 203k mortgage loans.
1. Regular 203k - given for properties that need structural
repairs (new roof or an additional room)
2. Streamlined 203k, which is given for non-structural repairs
such as painting and new appliances.
• Other repairs that an FHA 203k will cover: decks, bathroom
and kitchen remodels, flooring, plumbing, additions to the
home such as a 2nd storey, and heating and air conditioning
systems. The program will not cover “luxury” improvements
(adding a tennis court or pool to the property)

22. 3. FHA STREAMLINE REFINANCE PROGRAM
1. It is a special refinance program for people who have a Federal
Housing Administration (FHA) loan and is the simplest and easiest
way to refinance an FHA loan.
2. It allows a borrower to refinance without having to verify the
income and assets. Moreover it is possible to take a streamline
refinance, if the borrower is getting at least 5% benefit from the
old and current loan.
3. The borrower does not get any cash back when he signs the deal.
4.The main benefit with Streamline FHA-guaranteed loans is that the
monthly payments are permanently lowered.

23. •Refinance must clearly benefit the borrower
•No cash out allowed
•Limited income/asset verification
•Minimal credit requirements
•Less paperwork, Faster processing
•Lower closing costs
•No appraisal necessary
STREAMLINE REFINANCE GIUDELINES

24. 5.FHA CASH OUT REFINANCING
1. Exchanging your existing loan for a larger mortgage in order to get cold
hard cash.
2. This type of refinancing allows homeowners to tap into their home equity,
which is the value of the property less any existing mortgages or liens.
3. Cash out refinancing puts money in the pockets of homeowners
4. With a cash-out refinance, you wind up with cash, but also a higher
monthly mortgage payment in most cases.
E.g.Original mortgage: $300,000 loan, 30-year fixed @ 6.25%
New mortgage: $350,000 loan, 30-year fixed @ 4.75%

25. TYPES OF VA MORTGAGE
1.VA IRRRL REFINANCE
2.VA CASH OUT REFINANCE
3.VA JUMBO LOANS

26. 1. VA IRRRL
1. The U.S. Department of Veterans Affairs’ Interest Rate Reduction
Refinance Loan (IRRRL) helps homeowners refinance their existing VA
loans to a lower interest rate loan or to a fixed-rate loan.
2. No cash out to borrower means the borrower cannot take any extra
cash other than the old loan pay off amount
3. For only veterans(who worked in army)
4. The old or current loan should be a VA loan only

27. 2. VA CASH OUT
1. VA's Cash-Out Refinance is for homeowners who want to take cash
out of your home equity to take care of concerns like paying off debt,
funding school, or making home improvements.
2. The Cash-Out Refinance Loan can also be used to refinance a non-
VA loan into a VA loan. VA will guarantee loans up to 100% of the
value of your home.
ELIGIBILITY: He/She should be a veteran (who works for us army)

28. CONVENTIONAL TYPES
1. LIMITED CASH OUT REFINANCE
2. CASH OUT REFINANCE
3. HIGH BALANCE CONFORMING REFINANCE

29. 1.CONVENTIONAL LIMITED CASH OUT
1.These are same as FHA rate and term where the borrower
refinances an existing loan into a new loan to change the
loan term or interest rate.
2.These are non government organized loan programs
3.Fannie Mae and Freddie Mac are the government agencies
which organize these loans

30. 2. CONVENTIONAL CASH OUT
1. In these types of loans, borrower will take extra cash from
home equity to pay off other debts
2.These are same as FHA and VA cash out programs

31. FANNIE MAE AND FREDDIE MAC
1.Fannie Mae & Freddie Mac are government-sponsored enterprises
(GSEs) in the U.S. home mortgage industry. Though separate
companies that compete with one another, they have the same
business model - they buy mortgages on the secondary mortgage
market, pool those loans together and then sell them to investors
as mortgage-backed securities (MBS) in the open market.
2.Only difference: Fannie Mae mostly buys mortgage loans from
commercial banks, while Freddie Mac mostly buys them from
smaller banks that are often called "thrift" banks.

32. 1.The two companies are part of a complex process that keeps
money moving through the U.S. housing economy, allowing
more people to afford to buy homes than they would otherwise
be able if Fannie and Freddie did not exist.
2.The sub-prime crisis caused major damage to the business of
these GSEs and they ended up with high NPAs and defaults.
3.Since the 2008 financial crisis, when the U.S. government
bailed out Fannie and Freddie, the government has had a more
direct say in these two businesses.

33. FHA VS CONVENTIONAL
FHA Loan Advantages
Lower down payment
requirements
Lower credit score
requirements
Lower mortgage rates
May be easier to qualify for
than a conventional loan
Conventional Loan Disadvs.
Higher down payment
requirements
Higher credit score
requirements
Higher mortgage rates
May be more difficult to qualify
than FHA loan

34. FHA Loan Disadvantages
•Subject to mortgage insurance (for
full term of mortgage in many cases)
•Mortgage insurance harder to cancel
•Fewer loan options than
conventional loans
•Only available on owner-occupied
properties
•Generally only allowed to have one
FHA loan
•Loan limit of $625,500 in high-cost
areas, much lower in more affordable
regions
Conventional Loan Advantages
•No mortgage insurance req. if 80%
LTV or lower
•Can cancel existing mortgage
insurance at 80% LTV
•Can be used on all property and
occupancy types
•Many more loan program options
•Can hold numerous conventional
loans
•No maximum loan limit and
conforming limit higher than
the FHA floor
•More lenders to choose from
(nearly every bank offers
conventional loans)

35. JUMBO LOANS
1.When the loan amount exceeds $417,000, then that loan
program is called as Jumbo Loan program.
e.g. 1. VA Jumbo Loan
2. FHA Jumbo Loan
High Balance Conforming Loans:
When the loan amount exceeds $417000 in conventional loans,
then it is called as High Balance Conforming loan programs

36. ARM
An adjustable-rate mortgage, or ARM, has an introductory interest rate that
lasts a set period of time and adjusts annually thereafter for the remaining time
period. After the set time period the interest rate will change and so will
monthly payment.
Examples:
10/1 ARM: Your interest rate is set for 10 years then adjusts for 20 years.
7/1 ARM: Your interest rate is set for 7 years then adjusts for 23 years.
5/1 ARM: Your interest rate is set for 5 years then adjusts for 25 years.
3/1 ARM: Your interest rate is set for 3 years then adjusts for 27 years.

37. FIXED RATE MORTGAGES
A “fixed-rate mortgage” is the most ordinary and
uncomplicated mortgage available to homeowners today.
As the name suggests, the interest rate on a fixed mortgage
does not change during the entire duration of the loan, which
is typically 30 years.

38. LTV
1. A Loan-To-Value Ratio, also referred to as LTV Ratio, is a comparison
between the value of your loan and the value of your home. To determine
your LTV, your lender will divide your loan amount by the lesser of the
home’s appraised value
http://www.investopedia.com/terms/m/mortgage.asp

39. MAXIMUM LTV FOR DIFFERENT LOAN PROGRAMS
(FOR PRIMARY RESIDENCES)
FHA PROGRAMS
FHA PURCHASE FHA RATE AND TERM FHA 203K FHA CASH OUT FHA STREAMLINE
96.5% 97.75% 97.75% 97.75% NO LIMIT

40. VA PROGRAMS
VA PURCHASE VA IRRRL VA CASH OUT
100% NO LIMIT 100%

41. CONVENTIONAL PROGRAMS
CONVENTIONAL PURCHASECONVENTIONAL LIMITED CASH OUT CONVENTIONAL CASH OUT
80% 95% 95%

42. THANK YOU!NOTE
For the purposes of this ppt, it is considered either investment
(SFH or MFH) to be a standard long-term buy and hold rental
property (that means, not a reno, not a flip, not a Lease to Own,
not wholesaling, short-selling, day-trading or any other real estate
strategy out there!).