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Default risk –LTV –PI ratio –Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA.

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Presentation on theme: "Default risk –LTV –PI ratio –Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA."— Presentation transcript:

1 Default risk –LTV –PI ratio –Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA

2 FHA –Established in 1934 –For stabilizing housing market after GD –For making housing affordable –By providing insurance –Programs Section 203b – FRM Section 251 – ARM Section 245 – GPM –Loan maximum

3 VA –Guarantees ≥ 25% of loan –CRV (certificate of reasonable value) Loan ≤ 90% of CRV

4 Process –Borrow income Must be likely to continue (bonus) Must be verifiable (self employment, tip) –Assets Must be verifiable (gift) –Credit history –Housing expenses (PI ratio) –Other misc.

5 Exhibit 1 - Underwriting Standards: Conventional Loan Monthly Yearly Income $ 3,542.00 $42,504.00 Debts Installment $ 181.00 $ 2,172.00 Credit card $ 50.00 $ 600.00 Sales price $76,700.00 Appraisal value $77,000.00 Property tax $ 797.00 Hazard insurance $ 552.00 Net $38,383.00

6 Exhibit 3 ConventionalExhibit 3 Exhibit 4 FHAExhibit 4 Exhibit 5 VAExhibit 5

7 Closing Process –Fees and Expenses 9 costs in book –Prorations, Escrow costs, Others Property tax PMI Hazard ins Mortgage cancellation ins Title insurance Release fees, attorney fees, pest inspection, commissions, recording fees, transfer tax

8 RESPA Act –A uniform set of procedures and documents –7 pieces of information

9 Settlement costs –Truth in lending requirement Since 1968 Require lenders disclose to borrowers financial information contained in loan agreements in a uniform manner For borrower to compare different loans Not applicable to commercial lending E.g. APR (Exhibit 11)Exhibit 11 –APR is an effective rate, but under a specific compounding frequency (monthly here).

10 Settlement costs –Truth in lending requirement ARM requires more than FRM APR is more difficulty to compute Exhibit 12


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