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Understanding Sources of Financing: Primary and Secondary Markets in Mortgages

This chapter explores the primary and secondary markets for financing, detailing where lenders originate loans and how they sell them. It explains various primary loan sources, including savings and loan associations, commercial banks, life insurance companies, and mortgage companies. The secondary market sources such as FNMA, GNMA, and FHLMC are discussed. Additionally, it covers important concepts like usury, due-on-sale clauses, and prepayment penalties, along with key terms relevant to mortgage investors, borrowers, and financial intermediaries.

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Understanding Sources of Financing: Primary and Secondary Markets in Mortgages

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Presentation Transcript

  1. Chapter 13________________Sources of Financing

  2. Financing • Primary Market – where lenders originate loans. • Secondary Market – provides a way for lenders to sell a loan.

  3. Primary Loan Sources • Savings and Loan Associations • Commercial Banks • Life Insurance Companies • Mortgage Companies • Mortgage Brokers • Municipal Bonds • Computerized Loan Origination (CLO)

  4. Secondary Loan Sources • FNMA • GNMA • FHLMC • Farmer Mac

  5. Financial Intermediaries Mortgage Lenders Primary Market Secondary Market Mortgage Investors Borrowers The Secondary Mortgage Market

  6. Mortgage Loan Delivery Systems

  7. 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.

  8. Other Financing Conditions • Due-on-Sale – call clause. • Prepayment - penalty for the right to repay a loan early.

  9. Key Terms • Alienation clause • Automated underwriting system • Computerized loan origination • Disintermediation • Fannie Mac • Freddie Mac • Mortgage broker • Mortgage company • Participation certificates • Primary market • Secondary market • Usury

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