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Related Flashcards
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Cards In This Set
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What were some of the causes that led to the demise of thrifts?
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A.) Overregulation on the basis of "safety and soundness."
b.) Large inflows of capitall and interest rate volatility
c.) Disintermediation as huge blocks of savings were diverted from thrifts to Wall Street.
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What Congressional Act took major steps in order to establish depository institution accountability?
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1989 - Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
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What has been the core business of commercial banks?
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To make short-term laons to business for inventory financing and other working capital needs.
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What is "warehousing" in terms of financing?
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Mortgage bankers put up the originated loans as security for the bank financing and the loans are "stored" (at the bank or with a trustee) for a short period fo time.
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What is a mortgage banker, what does he or she do?
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They originate mortgages, providing the orignation services and initial funding, and sell them as quickly as possible.
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What are the results of the mortgage banking process?
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It creates two valuable financial assets:
1.) the loan
2.) the rights to the loan
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If the borrower is applying for a level-payment mortgage, the lender offers the following options to the borrower?
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1.) Time of loan application
2.) When lender ccommits to funding the loan
3.) When is mortgage can be acquired (closing date)
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What is pipeline risk?
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The period between the loan commitment and loan sale exposes mortgage bankers to considerable risk.
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Mortgage pipeline
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Loans from the time a lender has made a commitment to lend through the time loans are sold to an investor.
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Fallout risk
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The potential loss of borrowers from the origination pipeline if mortgage interest rates decline after the loan commitment, but before the closing of the loan, which resutls in borrowers choosing not to ("take down") the loan.
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Interest rate risk
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The risk that changes in the general level of interest rates will affect the pricing of all securities and investments.
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Forward commitment
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A contract binding a mortgage lender or investor to purchase a fund or laon on predetermined at a future date
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Mortgage banking companies
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Collect monthly payments and forward them to the mortgage investor.
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In recent years, the mortgage banking industry has experienced:
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Rapid consolidation
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Currently, which type of financial institution in the primary mortgage market provides the most funds for the residential (owner-occupied) housing market?
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Commerical banks
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