Adjustable Rate Mortgage Index Rate –Based on some publicly available index One-year US Treasury security Six-month Treasury Bill Cost of funds to thrift institutions –Fed. Reserve publishes “1 year constant maturity” Disclosure required –Historical example & Worst Case Scenario –“the Consumer Handbook on ARMs”
Adjustable Rate Mortgages For Borrower Usually lower interest rate than fixed rate With lower rate borrower can qualify for larger loan BUT when interest rates rise, payment rises For Lender Allows lenders to better match long term loan interest rates to short term deposits Teaser rates Negative amortization may occur
Blended Rate Borrower does not qualify for 100% financing Takes out two loans
Affordable Housing Loans Underwriting standards are modified to recognize different forms of credit responsibility. Prepurchase home buyer education. Low down payment. Usually to first time home buyer Most are owner occupied Different credit criteria
Asset Integrated Mortgage Combines a home loan and a fixed insurance annuity. Adds a “forced savings plan” to loan” Uses part of down payment to purchase an annuity which is pledged as additional collateral. Allows borrower to build a nest egg BUT the after tax return is generally negative when compared to a disciplined investment plan.
Seller Financing The current owner of the property agrees to accept part of the purchase price in the form of a loan ( promissory note and mortgage or deed of trust ) also becoming the lender in the transaction. Types –Contract for Deed, Installment Contract or Land Contract (title remains in Seller’s name) –Lease with Option to Purchase –Carry-back, Taking Back Paper and Wrap-around
Using Equity Equity mortgage Cash out refi Sale Leaseback Reverse annuity mortgage (RAM) Age6575 FMV$100,000 Loan Amt.$59,100$68,900 Monthly$287$390
Overly Creative Financing and Purchase Techniques Brokers must advise seller/clients to get advice concerning certain transactions. Brokers must submit all written offers, however brokers must be aware that their position of trust and confidence may not be abused and should not take part in such schemes Offers requiring Seller to subordinate their interest in the property, taking bonds instead of cash are to be scrutinized closely
Investing in Mortgages 1.Mortgage loan pools a.Guaranteed by Ginnie Mae and Freddie Mac b.May be sold prior to maturity 2.Direct purchase from Mortgage Broker or from individual looking to borrow money a.Higher yield b.More risk c.Check title and appraisal
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