Passionate

Employees

Mortgage 101
Innovative
Services

Delighted
Customers

Hexaware Technologies. All rights reserved. www.hexaware.com

Freddie Mac and its role in Housing Market

https://www.youtube.com/watch?v=I6LAYsuU3xc

Hexaware Technologies. All rights reserved. | www.hexaware.com

2
 What is Mortgage

Definition
Wants to buy
Mortgage is a loan used to purchase a home,
where the property serves as a borrowers
collateral.
Terminologies $40,000

Mortgagee, an entity that lends money to a borrower Mortgagor

for the purpose of purchasing a piece of real property

Mortgagors are the borrowers who pay the mortgage
$160,000
to those lending them money to purchase things like a
home
Mortgagor is expected to repay that principal, along
with interest, over the repayment period of the
mortgage
Removes mortgagors name from lien
Collateral is borrower's pledge of specific property to a Past due of payment and selll to another buyer
lender, to secure repayment of a loan Mortgagee

Hexaware Technologies. All rights reserved. | www.hexaware.com

3
 Primary and Secondary Mortgage
Primary Mortgage: The primary mortgage market is where loans are created.
Banks
Credit Unions
Mortgage Brokers
Mortgage Bankers

Secondary Mortgage: The Secondary mortgage market is where lenders can sell their loans to
interested parties
Freddie Mac
Fannie Mae
Ginnie Mae

Hexaware Technologies. All rights reserved. | www.hexaware.com

4
 Types of Mortgage
Fixed Rate Mortgage
Interest rate remains fixed for the entire term
Monthly payment remains the same the entire term
Adjustable Rate Mortgage (ARM)
Rate of interest remains fixed an initial period of time
Once the initial period is over, rate varies with some benchmark index like LIBOR, COFI, etc.
Monthly payment remains same in the initial period but varies later
Adjustable Rate Mortgage Hybrid Loan
It combines the features of both fixed and ARM.
Ex: Rate is fixed for the first 3 years and it converts to a 1- year ARM for remaining 27 years. In case of a 1-year ARM, the
rate varies for every one year
Interest Only Mortgage
LOAN
For a specified period of time, only interest is repaid. No payment is paid towards principal
Once, that period is over, principal amount has to be repaid
Mortgage Balloon Mortgage
Large portion of the borrowed principal is repaid in a single payment at the end of the loan period.
Reverse Mortgage
Homeowner can borrow money against the value of their home.
No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold

Hexaware Technologies. All rights reserved. | www.hexaware.com

5
 Mortgage Terminology

Hexaware Technologies. All rights reserved. | www.hexaware.com

6
Terminology Example
Veronica wants to borrow money to buy a house. She will eventually pay off the
borrowed money along with some interest (This is a Loan).
The house is for $100,000 and she already has $20,000 to pay for it (Down
Payment).
She goes to a Bank and asks for a Loan to which the Bank says it needs to
confirm if they should pay the remaining amount for the house (Appraisal).
Once the bank has confirmed the value of the house (Appraised value), they
want to confirm if Veronica will be able to pay the Loan (Credit check/
Underwriting).
The bank finds Veronica worthy and gives her a Loan of $80,000 to pay for the
house. Now every month Veronica will pay a periodic amount (Amortization) to
the bank for a some years (Amortization Term) till she has paid off the loan.
Hexaware Technologies. All rights reserved. | www.hexaware.com
7
 Common Terms

AMORTIZATION
Amortization provides for paying off a debt in installment payments. A portion of
each payment is applied first to the payment of interest; the remainder reduces the
principal amount of the loan.

CUSIP:
An identification number assigned to all stocks and registered bonds. The
Committee on Uniform Securities Identification Procedures (CUSIP) oversees the
entire CUSIP system. CUSIP numbers consist of nine characters (including letters
and numbers) that uniquely identify a company or issuer and the type of financial
instrument.

Hexaware Technologies. All rights reserved. | www.hexaware.com

8
 Common Terms

Maturity
The date on which the principal balance of a loan becomes due and payable.

Monthly Fixed Installment

That portion of the total monthly payment that is applied toward principal and
interest. When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction and doesnt cover all of the
interest. The loan balance therefore increases instead of decreasing.

Hexaware Technologies. All rights reserved. | www.hexaware.com

9
 Common Terms

Delinquency
Failure to make mortgage payments on time for a short period.

Default
Failure to make mortgage payments on a timely basis or to comply with other
requirements of a mortgage. Delinquency over a long period of time results in
Defaulting of the Loan.

Down Payment
Part of the purchase price of a property that is paid in cash and not financed
with a mortgage.

Hexaware Technologies. All rights reserved. | www.hexaware.com

10
 Common Terms

Amortization Term
The length of time required to amortize the mortgage loan expressed as a
number of months. For example, 360 months is the amortization term for a 30-
year fixed-rate mortgage.

Appraisal
A written analysis prepared by a qualified appraiser and estimating the value of
a property.

Appraised Value
An opinion of a propertys fair market value, based on an appraisers
knowledge, experience, and analysis of the property.
Hexaware Technologies. All rights reserved. | www.hexaware.com
11
 Common Terms

Mortgage Banker
A company that originates mortgages in the primary mortgage market,
exclusively for resale in the secondary mortgage market.

Mortgage Broker
An individual or company that brings borrowers and lenders together for the
purpose of loan origination.

Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagors default
on a government mortgage or conventional mortgage. Mortgage insurance can
be issued by a private company or by a government agency.
Hexaware Technologies. All rights reserved. | www.hexaware.com
12
 Common Terms
Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-Value (LTV) Percentage

The relationship between the principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property. For example, a $100,000 home with
an $80,000 mortgage has an LTV of 80 percent.

Unpaid principle balance(UPB)

The amount of principal owed on a loan. The amount of principal that remains after the
principal payment is the unpaid principal balance.

Escrow
An item of value, money, or documents deposited with a third party to be delivered
upon the fulfillment of a condition. For example, the deposit of funds or documents into
an escrow account to be disbursed upon the closing of a sale of real estate.
Hexaware Technologies. All rights reserved. | www.hexaware.com
13
 Common Terms

Security
The property that will be pledged as collateral for a loan.

Underwriting
The process of evaluating a loan application to determine the risk involved for
the lender. Underwriting involves an analysis of the borrowers creditworthiness
and the quality of the property itself.

Hexaware Technologies. All rights reserved. | www.hexaware.com

14
 Thank You

Hexaware Technologies. All rights reserved. | www.hexaware.com

15