Mortgage
A
mortgage, currently, is a device used to create a
lien on
real estate by a
contract.
Please note: Wikipedia does not give legal advice
At common law, a mortgage was a conveyance that on its face was absolute and conveyed a fee simple estate, but which was in fact conditional, and would be of no effect if certain conditions were met --- usually, but not necessarily, the payment of a debt by the original landowner. Hence the word "mortgage," Law French for "dead pledge;" that is, it was absolute in form and in theory required no further steps to be taken by the creditor.
In many U. S. states, however, a mortgage has been converted by statute to a device for creating a security interest in land. When the landowner fails to perform on the obligation secured by the mortgage, the mortgage holder must file a foreclosure to cause the property to be sold at auction, usually by the sheriff. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that the lien of the mortgage is prior to anyone else's claim.
Mortgage lending is a major category of the business of finance in the United States of America. Mortgages are commercial paper and can be conveyed and assigned freely to other holders. In the USA the Home Owners Loan Corporation, the Federal Housing Administration administer the programmes colloquially known as "Ginnie Mae" and "Freddie Mac" to foster mortgage lending and thus to encourage home ownership and construction.
See also : Deed, mortgagee, mortgagor, pre-qualification and pre-approval
External links
- Mortgage Calculator with dynamic diagrams. This mortgage calculator can be used to figure out monthly payments of a home mortgage loan. It factors in PMI (Private Mortgage Insurance), town property taxes, and their effect on the total monthly mortgage payment. The calculations are visualized with the aid of two diagrams, displaying the remaining balance and monthly paid interest vs. monthly paid principal respectively, both on a month/money coordinate system.
- MortgageSorter. This recommended site offers information and a free guide to mortgages in the UK.
Government National Mortgage Association
The
Government National Mortgage Association (
GNMA, also known as
Ginnie Mae) was created through a 1968 partition of the
Federal National Mortgage Association. The GNMA is a wholly owned corporation within the
United States,
Department of Housing and Urban Development (HUD). Its main purpose is to provide financial assistance to low- to moderate-income homebuyers, by promoting
mortgage credit.
The GNMA serves a major purpose in the U.S. financial arena by making investors' money easily available to finance the purchase of homes in the United States by any buyer. It does this by guaranteeing the "securitizing" of large numbers of home mortgages. For example, a mortgage lender may sign up 100 home mortgages in which each buyer agreed to pay a fixed interest rate of 6% for a 30-year term. The lender obtains a guarantee from the GNMA and then sells the entire pool of mortgages to an approved bond dealer. The bond dealer then sells so-called "GNMA bonds", paying perhaps 5% in this case, and backed by these mortgages, to investors. The original lender continues to collect payments from the home buyers, and forwards the money to the GNMA, and as these payments come in, the GNMA pays the 5% bond coupon payments to the investors. If a home buyer defaults on payments, the GNMA still pays the bond coupons, and if a home buyer prematurely pays off all or part of his loan, that portion of the bond is retired, or "called", the investor is paid accordingly, and no longer earns interest on that proportion of his bond.
The arrangement benefits everyone involved:
- The mortgage lender has offloaded all risk to the GNMA, and has very quickly received a reimbursement of the money lent to home buyers from the bond dealer, and can immediately use this money to offer another pool of loans to the public.
- The home-buying public benefits from lower mortgage prices caused by the large amount of lender competition, in turn caused by a large supply of lenders, which is enabled by this quick reimbursement of money.
- The lower-income home-buying public benefits from a greater willingness by lenders to risk making loans to that group.
- The investors, whose money makes all of this work in the first place, benefit from the "full faith and credit" of the United States government; GNMA bonds are backed by the pool of mortgages, and even were massive defaults to occur, the U.S. government would make good on all payments. GNMA bonds also feature higher returns than other U.S. government issued bonds.
GNMA bonds themselves are considered risk-free from the standpoint of total default, but they are subject to risks that all other
bonds have, including interest rate risk. They also have the undesirable attribute of an infinite number of "call dates", meaning that, unlike other bonds, a GNMA bond might suddenly "mature" next month, if all the homeowners decided to pay off or refinance their mortgages. This does not involve a risk of loss to the investor, but rather a premature payment of the principal, and now the investor has to go look for another investment for his money.
The GNMA says it has guaranteed securities on the mortgages for 28 million homes totalling over $2 trillion in its history, and guaranteed $175 billion in these securities in 2002. The GNMA is not taxpayer-funded, although ultimately its guarantees certainly would be if massive defaults were to occur and the government were left with the tab.
External links
Federal National Mortgage Association
The
United States Federal Government created the
Federal National Mortgage Association (FNMA - aka
Fannie Mae) in
1938 to establish a secondary market for mortgages insured by the
Federal Housing Administration (FHA). Fannie Mae buys mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases.
In 1968, the Federal National Mortgage Association was partitioned into two separate entities - one wholly owned by the government and known as the Government National Mortgage Association (Ginnie Mae), and the other to retain the name Federal National Mortgage Association (Fannie Mae). At this time Fannie Mae expanded its charter to buying other sorts of mortgages besides the government insured ones it had traditionally purchased.
Today, Fannie Mae is a consistently profitable American corporation. It receives no government funding or backing.
External links
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