US Home Mortgage Finance

 

Home mortgage finance refers to the loan taken generally for the purpose of acquiring a real estate property which is secured by a mortgage on the same (like personal house). In most countries, mortgage lending is used as the primary source for financing residential properties.

 

Home mortgage finance refers to the loan taken generally for the purpose of acquiring a real estate property which is secured by a mortgage on the same (like personal house). In most countries, mortgage lending is used as the primary source for financing residential properties.

Mortgage Finance is the field, which deals with the commercial borrowers of loan, lenders of national level and brokers who act simultaneously for making a fruitful deal for a new real estate production. This has materialized the building up of the high rises. Mortgage finance refers to the different avenues of financing instruments used for the purpose of acquiring a real estate property. Mortgage is a legal agreement, which conveys conditional ownership of home as a form of security for a financial obligation. The borrower of the debt gives a mortgage to the lender in exchange for the right of using the asset till the mortgage collapses. This agreement becomes void as soon as the financial obligation is repaid. Generally, mortgage is a debt instrument of long-term nature (normally 25 to 30 years) and involves real estates. Mortgages are required to be executed according to the formalities of the laws of the land where the property is located.

Banks, insurance companies and other financial institutions give a part of the purchase price of buildings and houses to organizations, companies and individuals where the property concerned is being mortgaged by the lender institution until and unless the loan is repaid.

In case of default in payment of debt the creditor has the right of moving to the court for seeking court-ordered sale of the house (foreclosure lending), and the consequent proceeds are used to pay the debt.

In case of residential mortgage, the home or property, which is meant to be bought, is pledged to the bank by the buyer of the home. If the buyer of the home defaults in paying the mortgage, then the bank has all the rights to claim the house.

In case of a foreclosure, the bank may exert its right of evicting the tenants of the house and selling it, in case of a default. The consequent proceeds of the sell may be used by the bank for clearing the mortgage debt.

In USA, many agencies of the federal government are assisting the mortgage market by infusing capital and also by guaranteeing the repayment of mortgages. E.g. Veterans administration gives guarantee of home loans in favorable terms to certain veterans. Again, Federal Housing Administration has made it possible to purchase real estate at low interest rate and with low down payments. These agencies have greatly contributed to the housing market from the late 1940s in USA.

Participants of home mortgage finance market are:

• Creditor
  Creditor is also known as mortgagee or lender. Creditors give loans to the individuals or organizations or companies (debtor) for buying a property. They have legal rights to the debt, which is secured by the mortgage. Banks, insurance companies and other financial institutions act as the creditors who give loans to the debtors for the purchase of properties, especially real estates.
• Debtor Debtor is also known as mortgagor.

  Debtor is basically a person or organization who owes money to another, i. e., the Creditor . They are the ones who take the loan and the onus of repayment of the loan lies with them. Generally, the homeowners, landlords and businesses take loan for purchasing a property.

Home mortgage financing is basically of two types:

• Foreclosure Lending: – Foreclosure lending is that type of lending where in certain conditions – mainly non-payment of the mortgage loan, a mortgagee may foreclose the mortgaged home. This type of lending is most common in majority of jurisdictions. In foreclosure lending, the onus of payment of outstanding dues lies with the mortgagor.
• Non-recourse Lending: – Non-recourse Lending is that type of lending where if the proceed from the sale of the mortgaged home are not sufficient to cover the outstanding debt then the mortgagee may not have recourse to the mortgagor after foreclosure.

In USA, there are different types of financing facilities available for home mortgaging. Some of them are given below:

(1) Home Mortgage Refinance Loan:
Home mortgage refinance loans can act as a very good alternative to bankruptcy and foreclosure. Home mortgage refinance loan is a complete completely replaces the mortgage that one has. In majority of cases, the new mortgage company pays off the existing mortgage of a debtor for a reduced rate and a new mortgage is then drawn up. In this way the interest rate scales down and consequently the payment gets slashed down.

(2) Home Equity Loan:Home equity loan is such a loan where the owner of the home borrows money from lenders by guarantying their house. Its takers are generally those people who want to borrow huge sums of money by keeping their house as guarantee.

Home equity loans are advantageous because of the following reasons:

1. Low interest rate
2. Qualifying for home equity loans are relatively easy
3. Payments made towards home equity loans may be considered for tax deductions
4. Large sum of loans can be taken by the borrower’s
5. Lenders prefer equity home loans and consider this to be safer than others because when the collateral is in form of the house then the debtor cannot disappear with the same. Thus, it gives the creditors ample chance for collection of debts.

(3) Second Mortgage Loan :

Second mortgage loans are a great way of meeting the emergency requirements of fund. This loan helps a debtor to extract more equity (cash) from his/her home than a conventional first mortgage.Second mortgage loans are amortized over 5 to 15 years. It can be of two types: – (a) Fixed rate second mortgage loan
(b) Variable rate second mortgage loan

(4) Home Improvement Loan : Home Improvement loans are the forms of loan used for additions in an already existing house. For example, kitchen renovation, addition of bedroom, etc.