THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, January 28, 1995 TAG: 9501260282
SECTION: REAL ESTATE WEEKLY PAGE: 18 EDITION: FINAL
COLUMN: ABOUT THE OUTER BANKS
SOURCE: Chris Kidder
LENGTH: Medium: 100 lines
The North Carolina Real Estate Commission takes the broad view on what real estate agents should know. It's not enough to be able to list properties, find buyers and close a sale.
Agents are expected to understand house construction, property and flood insurance, land surveying, methods of appraisal and financing.
Real estate brokers who qualify for the license through the state-approved education course must take a 30-hour class on real estate financing. It's is not the simple proposition it once was.
In the classic movie ``It's A Wonderful Life,'' James Stewart was able to explain, clearly and completely, in less than a minute, how loans for residential property worked.
In his Bedford Falls, bankers had no one but themselves to satisfy in approving mortgage loans. They made the loan and, by charging more interest for the loan than they were currently paying on deposits, hoped to make a profit.
But the days of savings institutions and commercial banks relying on their depositors' savings and checking account deposits to finance the community's real estate purchases are over.
The federal government plays an increasing role in mortgage lending through FHA, VA, the Federal Home Loan Mortgage Corp. (FHLMC, nicknamed ``Freddie Mac'') and other programs.
On the Outer Banks, the Farmer's Home Administration (FmHA) is another player because Dare and Currituck Counties are considered rural.
A growing majority of residential mortgage loans are not made by local banks and savings institutions but by mortgage companies, a different breed of lender, which serve as intermediaries for investment money.
While banks and savings institutions are still a source for conventional mortgage loans (loans not insured or guaranteed by a government agency), mortgage companies are the primary originators of FHA-insured and VA-guaranteed loans.
Many large commercial banks have formed mortgage company subsidiaries to compete for a full plate of mortgage money.
Most mortgage company money comes from insurance companies, retirement programs, pension and mutual funds, the sale of securities, the Federal National Mortgage Association (FNMA, called ``Fannie Mae'') and foreign capital investors - all of which make up what industry people call the ``secondary market'' - who buy the mortgages once they're consummated.
Fannie Mae, by the way, is a private corporation listed on the New York Stock Exchange (but with very close ties to the government provided in its charter). It was established by Congress is 1938 to buy FHA loans and provide other home mortgage assistance.
Fannie Mae promises its money - raised through the sale of securities - to lenders at agreed rates before the loans are made.
Don't confuse Fannie with her sister ``Ginnie'' (GNMA, Government National Mortgage Association). Ginnie Mae was formed in 1968 and is the only government-created loan underwriting agency that is government-owned.
Ginnie Mae, part of the U.S. Department of Housing and Urban Development, does not buy loans. It approves ``loan poolers,'' companies that accumulate blocks of mortgage loans as collateral for the sale of securities. It also writes the standards for the loans eligible to be pooled.
Freddie Mac, another quasi-government agency like Fannie Mae, is owned by savings associations who are members of the Federal Home Loan Bank System. Most of the loans it buys are already executed and most are resold, again, to other investors.
Because mortgage companies - and, now, most savings institutions and banks - sell their loans, lenders have lost their autonomy. In most cases, the federal government and investors tell them who, what, how much and where mortgage loans can be made.
The secondary market bloomed with Fannie Mae and changed the profit motive of lending. The secondary market buys the loans for the long-term interest those loans will generate. The loans are often sold over and over again, like shares of stock, almost always in package deals worth representing millions of mortgage dollars.
The interest you pay on a mortgage loan belongs to the final mortgage holder. That means primary lenders must make their profit some other way. They charge fees for originating and processing loans. They charge discount points (the difference between the interest rate they charge you, the borrower, and the rate a secondary market buyer will pay for the loan).
In most cases, primary lenders continue to service mortgage loans after they've been sold. They earn a servicing fee for handling the collection and disbursement of mortgage payments.
Servicing rights to loans can also be sold. It's not uncommon for home buyers to borrow money from one lender, have the mortgage loan sold to a secondary investor and the service contract sold to a third party.
For borrowers who like to know with whom they're dealing, it makes good sense at ask a lender how they handle their loan portfolios.
But don't be surprised if the answer doesn't satisfy. Most lenders regularly readjust their portfolios to maximize income and reduce risk. The chances are good that they won't know today where your loan will end up tomorrow.
If Jimmy Stewart had attempted to explain today's mortgage money to his customers, he'd still be talking. MEMO: Send comments and questions to Chris Kidder at P.O. Box 10, Nags Head,
N.C. 27959.
by CNB