Mortgage in US Market
MORTGAGE IN US MARKET:
Mortgages are completely different aspects in the case
of the USA. Most people in the US do invest in the mortgage secondary market.
To understand it better way let's get into the topic
detail and understand the various terminologies and vocabulary of mortgages.
What is a Mortgage loan?
Mortgages are types of loans that are used to buy
homes and other types of real estate. The property itself serves as collateral
for the loan Mortgages are available in a variety of types, including
fixed-rate and adjustable-rate. The cost of a mortgage will depend on the type
of loan, the term (such as 30 years), and the interest rate the lender charges.
Mortgage rates can vary widely depending on the type of product and the
qualifications of the applicant.
Conventional mortgage: Conforming loan?
A conforming loan is a mortgage with terms and
conditions that meet Fannie Mae and Freddie Mac's funding criteria. Conforming
loans are subject to a monetary limit that varies from year to year. Conforming
loans often have lower interest rates than other mortgage kinds. Conforming
loans are preferred by lenders because they can be packaged and sold in the
secondary mortgage market.
Conventional mortgage: non-conforming loan?
A nonconforming mortgage is a home loan that does not
adhere to government-sponsored enterprises (GSE) guidelines. These loans often
carry higher interest rates than conforming mortgages. Mortgages that exceed
the conforming loan limit are called jumbo mortgages. Mortgages may become
nonconforming based on a borrower’s loan-to-value ratio, debt-to-income ratio,
credit score and history, and documentation requirements.
Now let us understand some regulators who control
the mortgage market and create a surplus of money:
Federal Housing Finance Agency?
The Federal
Housing Finance Body (FHFA) is a U.S. regulatory agency that oversees the
secondary mortgage market. In the
aftermath of the 2008 housing crisis, FHFA serves to ensure financial stability
and supply adequate credit to the mortgage market. Fannie Mae and Freddie Mac,
the two largest government-sponsored mortgage firms, are likewise regulated by
the FHFA. It aims to keep credit available and keep all mortgages from going into
foreclosure.
What is Fannie Mae?
Fannie Mae (the Federal National Mortgage Association or
FNMA) was founded in 1938 as a government-sponsored business (GSE). Fannie Mae
was established to increase the liquidity of house mortgages by establishing a
secondary mortgage market. Fannie Mae does not provide direct loans to
customers; instead, it keeps money flowing to lenders such as banks and credit
unions by purchasing and guaranteeing mortgages.
In the event of a foreclosure, Fannie Mae makes every effort to
sell the homes as soon as possible in order to limit the potential harm.
What is Freddie Mac?
Freddie Mac is a stockholder-owned, government-sponsored
business (GSE) established by Congress in 1970 to encourage middle-income
Americans to become homeowners. Freddie Mac's role is to acquire a large number
of loans from mortgage lenders, consolidate them, and sell them as
mortgage-backed securities. The key distinction is that Fannie Mae acquires
mortgage loans from major retail or commercial banks, whereas Freddie Mac
acquires loans from smaller institutions.
What is Ginnie
Mae?
The Government National Mortgage Association is a federal
company that guarantees interest and principal payments on mortgage-backed
securities issued by approved lenders. The association, sometimes known as
Ginnie Mae or GNMA, is a subsidiary of the United States Government. HUD stands
for Housing and Urban Development. Its purpose is to ensure cheap home loans
for underrepresented mortgage borrowers. Private lenders that have been
approved can make qualified loans and sell mortgage-backed securities.
By
Madhuri Akula (b15-14)
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