Sources of Funds for Residential Mortgages
Study Questions
1. What is the primary purpose of the risk-based capital requirements that Congress enacted as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)?
2. Explain what is meant by forward commitments and standby forward commitments. Which part of the mortgage banker's pipeline is often hedged with forward commitments? With standby forward commitments? Why?
3. Describe the basic activities of Fannie Mae in the secondary mortgage market. How are these activities financed?
4. Explain the importance of Fannie Mae and Freddie Mac to the housing finance system in the United States..
5. What went wrong with mortgage brokerage? Is it being fixed?
6. Describe the mechanics of warehouse financing in mortgage banking..
7. Explain how affordable housing loans differ from standard home loans.
8. List three "clienteles" for subprime home mortgage loans.
You have just signed a contract to purchase your dream house. The price is $120,000 and you have applied for a $100,000, 30-year, 5.5 percent loan. Annual property taxes are expected to be $2,000. Hazard insurance will cost $400 per year. Your car payment is $400, with 36 months left. Your monthly gross income is $5,000. Calculate:
a. The monthly payment of principal and interest (PI).
b. One-twelfth of annual property tax payments and hazard insurance payments.
c. Monthly PITI (principal, interest, taxes, and insurance).
d. The housing expense (front-end) ratio.
e. The total obligations (back-end) ratio.
Contrast automated underwriting with the traditional "Three Cs" approach