Mortgage Financing

Mortgage financing is the loan secured for financing a real estate purchase.
In this a document is written stating that the lender has the rights in real for the property as collateral for a loan. This in other words is a written promise that the borrower repays the amount on certain conditions.

In some states this is referred to as deed of trust. These states allow non judicial foreclosures. That means if the borrower fails to repay the amount in the prescribed time, the lender takes the property as his property and there is no judicial or court interference.

In some other states this only creates a lien on real property. The lender obtains a court permit in order to close the debt and put the real property for sale. This is called as judicial foreclosure.

In others but very few states, the mortgage transfers the legal rights of the property to the lender. The title extinguishes when the debt is paid in full. These states are called as hybrid states. The lender might go in for a non judicial foreclosure.

In some states the debtor has a grace period after foreclosure of the property within which the debtor can take the property back by repaying the loan. This amount is the winning bid price plus the interest at the legal rate for the state.

US mortgage finance is a big industry because it is the mortgage financing market of the country. This deals with commercial borrowers, lenders and brokers who make a fruitful deal for the purchase of real estate. This also refers to different areas of financing channels used for the purpose of acquiring a real estate property.

In USA the institution which provides this lending for the construction of real estate property is Federal Housing Administration. FHA encourages Government institutions namely:

  • Fannie Mae
  • Ginnie Mae
  • Freddie Mae

FHA also takes large amounts of mortgages from banks and gives them to investors as Mortgage Backed Securities. In USA the bank loans are secured and are also salable as bonds. The government enterprises Fannie Mae, Freddie Mae assists it by stamping the bonds with guarantee of timely payment incase the owner has not paid the amount. These two lenders are in other words agents and hence this form of lending is called as agency lending.

Federal National Mortgage Association:

Fannie Mae is also called as Federal National Mortgage Association and is the largest profit oriented Private Corporation. Its main function is buy home mortgage guaranteed by Federal Government from the secondary market. This institution buys home loans insured by the Federal Housing Administration from the lenders of the mortgages and thus helps to increase the mortgage fund supply for lending purpose.

Government national mortgage association:

Ginnie Mae is popularly known as Government National Mortgage Association. This is owned by Federal Government. It encourages mortgage credit and helps people of low and middle class to buy house. This enterprise along with other firms sells mortgages in secondary market which are bought by the investors which increases the price of the bonds and also consequently fall in the interest rate of the same. With this the interest rate in the primary market falls which is advantageous for the buyers of the mortgage loans.
The different type of mortgage finance schemes are:

Fixed Rate Mortgage (FRM):

In this type of mortgage the interest rate remains fixed throughout the life of the loan. Its main features are:

  • Rate of interest is fixed throughout the life of the loan.
  • Mortgage payments are higher.
  • If the interest rate decreases then it can be refinanced
  • Life time is 15 or 30 years
  • Monthly mortgage payment is fixed throughout the life of the loan
Adjustable rate mortgage:

In this type the rate and the payment vary during the life span of the loan.

Features:

  • Mortgage payment is lower over a shorter time period
  • If interest rate increases then payment improves
  • Higher risk
  • They generally taken for 1month to 6 months to 1 year
Balloon mortgages:

Features:

  • Duration is 5 to 7 years
  • At the end of the first fixed period there might be a chance of interest rate becoming higher
  • Mortgage payment is shorter over a less time period
  • A case of failure of payment there is a risk of foreclosure
  • The loan can be converted to new one after the end of the initial term
First time buyer program:

Features:

  • Down payment is lower
  • Property and income are considered

Popular US mortgage finance companies are:

  • NVR mortgage finance
  • Citi financial mortgage
  • Liberty financial mortgage
  • Lennox financial mortgage
  • American financial mortgage
  • Fairfield financial mortgage
  • 1st financial mortgage
  • Century financial mortgage