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Default risk LTV PI ratio Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA

Default risk LTV PI ratio Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA. FHA Established in 1934 For stabilizing housing market after GD For making housing affordable By providing insurance Programs Section 203b – FRM Section 251 – ARM Section 245 – GPM Loan maximum. VA

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Default risk LTV PI ratio Mortgage insurance PMI (up to 97%) FHA (up to 100%) VA

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  1. Default risk • LTV • PI ratio • Mortgage insurance • PMI (up to 97%) • FHA (up to 100%) • VA

  2. FHA • Established in 1934 • For stabilizing housing market after GD • For making housing affordable • By providing insurance • Programs • Section 203b – FRM • Section 251 – ARM • Section 245 – GPM • Loan maximum

  3. VA • Guarantees ≥ 25% of loan • CRV (certificate of reasonable value) • Loan ≤ 90% of CRV

  4. Process • Borrow income • Must be likely to continue (bonus) • Must be verifiable (self employment, tip) • Assets • Must be verifiable (gift) • Credit history • Housing expenses (PI ratio) • Other misc.

  5. Exhibit 3 Conventional • Exhibit 4 FHA • Exhibit 5 VA

  6. Closing Process • Fees and Expenses • 9 costs in book • Prorations, Escrow costs, Others • Property tax • PMI • Hazard ins • Mortgage cancellation ins • Title insurance • Release fees, attorney fees, pest inspection, commissions, recording fees, transfer tax

  7. RESPA Act • A uniform set of procedures and documents • 7 pieces of information

  8. Settlement costs • Truth in lending requirement • Since 1968 • Require lenders disclose to borrowers financial information contained in loan agreements in a uniform manner • For borrower to compare different loans • Not applicable to commercial lending • E.g. APR (Exhibit 11) • APR is an effective rate, but under a specific compounding frequency (monthly here).

  9. Settlement costs • Truth in lending requirement • ARM requires more than FRM • APR is more difficulty to compute • Exhibit 12

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