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What is the Federal Home Loan Bank Act?

The Federal Home Loan Bank Act was signed into law by President Hoover in 1932. The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks. The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers. Continue reading...

What is a Mortgage Subsidy Bond?

Mortgage subsidy bond is another word for a mortgage revenue bond, which are municipal bonds which are used to fund mortgage relief programs and refinancing arrangements through the state or municipal government. In 1980, the Mortgage Subsidy Bond Tax Act established some rules and definitions surrounding mortgage subsidies and their bonds, and, more specifically, removing their exemption from federal taxation. Continue reading...

What is the Home Affordable Refinance Program (HARP)?

In 2009 the Federal Housing Finance Agency (FHFA) commissioned the HARP program to help Americans upside-down on mortgages to get approved for mortgage refinancing. This is only available to people whose mortgages are already owned by Freddie Mae and Freddie Mac. Many Americans find themselves upside-down, or underwater, on their home mortgages, particularly after the housing bubble popped in 2008. To be underwater means that there is more owed on the loan than the home can serve as collateral for. Continue reading...

What is Freddie Mac?

Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...

What is the Housing and Economic Recovery Act (HERA)?

HERA was passed in 2008 in response to the subprime mortgage crisis that rocked the entire economy and left many Americans underwater on their mortgages. People would need to refinance their mortgages and this bill approved the funding to help that happen. The Housing and Economic Recovery Act did several things, all aiming to help American consumers and lending institutions get out of the recession left by the subprime mortgage bubble in 2008. Continue reading...

What are Housing Bonds?

The Housing and Economic Recovery Act of 2008 took several steps to patch up the housing market after the subprime meltdown, one of which was the authorization of states and municipalities to issue mortgage revenue bonds (MRBs) which they could then use to help local lending institutions fund mortgages for lower-income Americans. Housing bonds are issued by state and local governments as a way to raise revenue that can help local banks and lending institutions fund mortgage loans to the community. Continue reading...

What is a No-Appraisal Mortgage?

Most mortgages require that an appraisal or at least inspection is done before any loan is made. There are exceptions to this, in the form of no-appraisal mortgages which are available to lower-income homeowners, qualifying members of the military and its veterans, and some farmers. Most no-appraisal loans are through federal programs such as HARP, FHA, and the VA. The purpose of these loans is to keep people in their homes and to keep the economy relatively stable. These are generally not first mortgages, but are relief, modification, and refinancing arrangements to qualifying homeowners that already have a mortgage outstanding. Continue reading...

What is Mortgage Insurance?

Mortgage insurance may refer to a few kinds of insurance that protects the lender in a mortgage loan. It might be mortgage life insurance, mortgage title insurance, private mortgage insurance (PMI), or another form of protection. Usually the borrower will pay the premiums for such insurances. Mortgage insurance protects the bank or lending institution from various risks that might prevent them from being repaid for their loan. This might include the risk that a borrower will default on payments or that the borrower might die. Continue reading...

What is the House Price Index (HPI)?

The House Price Index (HPI) tracks average prices of homes using data from sales and refinancing, tracking the data for the same residential properties over many years. The Federal Housing Finance Agency (FHFA) publishes it quarterly and relies on data from Fannie Mae and Freddie Mac. The HPI is an important index for the real estate and mortgage industry, as well as the economy as a whole. It uses information from Fannie Mae and Freddie Mac about home sale prices and the refinancing value of homes, tracking the sales and refinancing prices of homes in the Fannie Mae and Freddie Mac databases, all the way back to 1978. They do this using a weighted repeat-sales method. It is published quarterly by the Federal Housing Finance Agency (FHFA). Continue reading...

What is a Home Debtor?

In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...

What is a Home Equity Conversion Mortgage?

The main type of reverse mortgage that people get today is the Home Equity Conversion Mortgage, backed by the US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). These reverse mortgages are available to people age 62 or older who are interested in leveraging their home equity to gain liquidity, either in the form of a lump sum, monthly payments, or other arrangement. A Home Equity Conversion Mortgage (HECM) is a reverse mortgage available to homeowners age 62 or older, insured by the Federal Housing Administration (FHA). Continue reading...

What is the Federal Housing Administration (FHA)?

The Federal Housing Administration (FHA) is to lenders what FDIC insurance is to savers; it protects lending institutions from mortgage defaults. By protecting lenders, the FHA was begun with the intention to stimulate the housing market. The FHA was established in 1934 in an effort to stimulate the construction and purchase of new homes by offering insurance protection to the institutions (banks and mortgage companies) who make mortgage loans. Continue reading...

What is an FHA Loan?

The Federal Housing Act of 1934 sought to make it easier for Americans to buy homes. It was believed and still is today to an extent that homeownership is a positive foundation for a healthy economy because it provides stability to communities, facilitating healthy family life, community involvement, and the development of businesses in an area where a community will support the business. The Federal Housing Administration runs the FHA loan program with the help of certified lending institutions. FHA loans are a way for lower income earners to be able to purchase a home. Continue reading...

What is a Reverse Mortgage?

A reverse mortgage is basically an annuity paid for with home equity. In a reverse mortgage, instead of paying to for your home, you’re getting paid for your home. It is considered a loan, but it does not have to be repaid, except by the proceeds from selling the home. Older Americans who need the income and aren’t concerned about their heirs getting their house might apply for a reverse mortgage. It is also known as a Home Equity Conversion Mortgage (HECM). Continue reading...

What is a Home Inspection?

A home inspection is performed by a certified home inspector to determine the condition of a property and to find out if there any safety of compliance issues that the home or property may have. Home inspectors are typically hired by real estate professionals and homebuyers when a home is on the market. It is not required except for FHA loan termite inspection requirements, but it is always advisable for a potential home buyer. A home inspection is not to be confused with a home appraisal. Continue reading...

What is market discipline?

Market discipline is a term which describes the restraint implicitly required of financial services companies in order to remain solvent and financially strong in the face of market pressure instead of regulatory pressure. The markets can sometimes make a ruling on which companies were conducting their business according to prudent and ethical guidelines, without the need of an SEC audit or the intervention of any other regulatory agency. The companies that weren’t will lose their customers and go bankrupt, in no particular order. Continue reading...

What is the FHFA?

The Federal Housing Finance Association is the Conservator of Fannie Mae and Freddie Mac since the 2008 meltdown. The FHFA was established as an independent government entity to oversee the secondary mortgage market. The FHFA is a regulatory agency which took over for the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight (OFHEO). It was created in 2008 by the Housing and Economic Recovery Act (HERA), and it oversees the operations of Freddie Mac, Fannie Mae, and the 11 federal home loan (FHL) banks. If you’ll recall, Fannie Mae and Freddie Mac provide liquidity to banks and transfer risk from them by buying their mortgage cash flows from them. Continue reading...

What are Federal Agencies?

Agencies are entities which are created by the federal government to fulfill an obligation or role that is deemed to be in the best interest of the country. Agencies might also also be known as Commissions, and they can be formed by legislative action, or through the direction of a specific Department or Branch of the government. Some federal agencies are known as Commissions, Task Forces, or Administrations, but all are generally tasked with a specific responsibility or focus. Continue reading...

What is Ginnie Mae?

Ginnie Mae is the colloquial name for the Government National Mortgage Association, or GNMA. It brokers mortgage-backed securities which are backed by the full faith and credit of the US Government. Among Ginnie Mae, Freddie Mac, and Fannie Mae, only Ginnie Mae is actually owned by the government and issues securities which are backed by the full faith and credit of the US Government. Ginnie Mae’s mission is to increase liquidity and decrease risk to mortgage lenders so that Americans are able to purchase homes. Continue reading...

What is GAAP?

Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...

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