Friday, July 21, 2006
The mortgage business is a complex and ever-changing industry. It is significant that you know how the mortgage market works and how the lenders make their profit. In doing so, you would gain an approval of loan programs and why certain loans are offered by certain lenders.
INSTITUTIONAL LENDERS
The first broad group of distinction is institutional versus private. Institutional lenders include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds, and even insurance companies. These lenders usually make loans based on the income and credit of the borrower, and they normally follow normal lending guidelines. Private lenders are individuals or tiny companies that do not have insured depositors and are generally not keeping pace by the federal government.
MORTGAGE BROKERS vs. MORTGAGE BANKERS
Many consumers presume that "mortgage companies" are banks that lend their own money. In fact, a company that you contract with might be either a mortgage banker or a mortgage broker.
A mortgage banker is a straight lender; it lends you its own money, even though it often sells the loan to the secondary market. Mortgage bankers (also known as "direct lenders") at times retain servicing rights as well.
A mortgage broker is a middleman; he does the loan shopping and then analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal openly with the public (hence the expression, "wholesale lender").
CONVENTIONAL, VS, NON-CONVENTIONAL
"Conventional" financing, by definition, is not insured or certain by the federal government. Conventional loans are usually broken into two categories: "conforming" and "non-conforming." A conforming loan is one that matches or adheres to strict Fannie Mae/Freddie Mac loan underwriting guidelines.
Conforming loans are a little risk to the lender, so they offer the buck interest rates. Conforming loans also have the strictest guaranteed guidelines.
Conforming loans have three basic requirements:
1. Borrower Must Have a Minimum of Debt
2. Good Credit Rating
3. Funds to Close
NON-CONFORMING LOANS
Non-conforming loans have no set rule and vary extensively from lender to lender. In fact, lenders frequently change their own non-conforming guidelines from month to month.
Non-conforming loans are also recognized as "sub-prime" loans, as the target customer (borrower) has credit and/or income confirmation that is less-than-perfect. The sub-prime loans are frequently rated according to the creditworthiness of the borrower – "A," "B", "C" and "D."
The sub-prime loan business has grown extremely over the past ten years, particularly in the refinance business and with shareholder loans. Every lender has its own criteria for sub-prime loans, so it is not possible to list every loan plan available on the market. Suffice it to say, the guidelines for sub-prime loans are much more lax than they are for compliant loans.
INSTITUTIONAL LENDERS
The first broad group of distinction is institutional versus private. Institutional lenders include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds, and even insurance companies. These lenders usually make loans based on the income and credit of the borrower, and they normally follow normal lending guidelines. Private lenders are individuals or tiny companies that do not have insured depositors and are generally not keeping pace by the federal government.
MORTGAGE BROKERS vs. MORTGAGE BANKERS
Many consumers presume that "mortgage companies" are banks that lend their own money. In fact, a company that you contract with might be either a mortgage banker or a mortgage broker.
A mortgage banker is a straight lender; it lends you its own money, even though it often sells the loan to the secondary market. Mortgage bankers (also known as "direct lenders") at times retain servicing rights as well.
A mortgage broker is a middleman; he does the loan shopping and then analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal openly with the public (hence the expression, "wholesale lender").
CONVENTIONAL, VS, NON-CONVENTIONAL
"Conventional" financing, by definition, is not insured or certain by the federal government. Conventional loans are usually broken into two categories: "conforming" and "non-conforming." A conforming loan is one that matches or adheres to strict Fannie Mae/Freddie Mac loan underwriting guidelines.
Conforming loans are a little risk to the lender, so they offer the buck interest rates. Conforming loans also have the strictest guaranteed guidelines.
Conforming loans have three basic requirements:
1. Borrower Must Have a Minimum of Debt
2. Good Credit Rating
3. Funds to Close
NON-CONFORMING LOANS
Non-conforming loans have no set rule and vary extensively from lender to lender. In fact, lenders frequently change their own non-conforming guidelines from month to month.
Non-conforming loans are also recognized as "sub-prime" loans, as the target customer (borrower) has credit and/or income confirmation that is less-than-perfect. The sub-prime loans are frequently rated according to the creditworthiness of the borrower – "A," "B", "C" and "D."
The sub-prime loan business has grown extremely over the past ten years, particularly in the refinance business and with shareholder loans. Every lender has its own criteria for sub-prime loans, so it is not possible to list every loan plan available on the market. Suffice it to say, the guidelines for sub-prime loans are much more lax than they are for compliant loans.
posted by real estate
@ 3:00 AM
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