1. Chapter 13: Sources of Financing
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2. FINANCING
Primary Market – where lenders originate
loans.
Secondary Market – provides a way for
lenders to sell a loan.
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3. PRIMARY LOAN SOURCES
Savings and Loan Associations
Commercial Banks
Life Insurance Companies
Mortgage Companies
Mortgage Brokers
Municipal Bonds
Computerized Loan Origination (CLO)
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4. DISINTERMEDIATION
The result created when
lenders are required to
pay high rates of interest
for deposits while
receiving long-term
income from low-interest
rate mortgage loans.
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5. COMPUTERIZED LOAN ORIGINATION
Originating loans through the use
of a networked computer system.
provides information on current
mortgage loan terms and loan types
available on the market.
conveys loan application information
electronically.
monitors the loan approval process
so that the practitioner can check on
the progress of the loan application
at any time.
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6. The Secondary Mortgage Market
Primary Market Secondary Market
Mortgage
Lenders
Borrowers
Financial
Intermediaries
Mortgage
Investors
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7. Mortgage Loan Delivery Systems
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8. established as an independent entity within
the Department of Housing and Urban
Development.
purpose is to ensure the capital adequacy and
financial soundness of Fannie Mae and
Freddie Mac
 requires Fannie Mae and Freddie Mac to meet
certain affordable housing goals set annually
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OFHEO

9. SECONDARY LOAN SOURCES
FNMA
GNMA
FHLMC
Farmer Mac
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10. AUTOMATED UNDERWRITING SYSTEMS
 This process is very streamlined. The regular uniform
residential loan application is submitted to the
lender and the lender then verifies the applicant’s
employment, income, and assets. This information is
fed into the computer and is promptly analyzed by
the computer program. If the borrower is accepted
and if the loan-to-value ratio is greater than 80%, the
application is then forwarded to a private mortgage
insurer. Those that are not accepted are considered
as “refer” or “ caution” and sent to the underwriting
department.
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11. USURY
State legislation that imposes an interest
rate ceiling on loans.
U.S. Congress passed legislation that
exempts from state usury limits most first
lien home loans made by institutional
lenders.
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12. OTHER FINANCING CONDITIONS
Price to Borrower
Due-on-Sale – call clause.
Prepayment - penalty for the right to repay a
loan early.
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13. Key Terms
 Alienation clause
 Automated underwriting
system
 Computerized loan
origination
 Disintermediation
 Fannie Mac
 Freddie Mac
 Mortgage broker
 Mortgage company
 Participation certificates
 Primary market
 Secondary mortgage
market
 Usury
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