Application of Economics Concept and Mortgage Broker

Application of Economics Concept and Mortgage Broker

Introduction

The paper aims to apply the course knowledge to the profession if a mortgage broker. The significant concepts that are analyzed in relation to the profession are Demand and Supply, Federal Reserve System and trade/Exchange.

Mortgage Broker

The profession of mortgage brokers is changing along with the broader sector of financial services. The mortgage is a real right of security and realization of value, which is to ensure the fulfillment of an obligation (usually payment of a loan or loan ) on a good (usually property ) which, if taxed, remains in power of its owner , allowing the creditor mortgage, if the debt is guaranteed not satisfied in a timely fashion, promote the forced sale of the encumbered with the mortgage, regardless of its owner at the time for, with amount, payment of the claim made due to the extent of the amount obtained with the forced sale promoted to the realization of the mortgaged property (LaCou,1999).

Mortgage broker - a new specialty, which appeared in connection with an increase in the number of credit institutions engaged in mortgage and the amount of mortgage programs. If a potential borrower has a mortgage loan cannot or will not understand their own in this flow of information, it would come to the aid it is mortgage broker. There are as independent mortgage brokers and mortgage lending departments in the real estate agencies, employees are also referred to as mortgage brokers (Gerardi,2008). However, in some agencies, real estate services mortgage broker can be obtained free of charge, provided that the borrower will seek out and acquire the mortgage housing through this agency (LaCou,1999).

Funding for mortgages is typically provided by commercial banks and thrifts, and these institutions, as well as mortgage brokers, typically issue mortgage loans to households. However, it is very common for these loans to be quickly sold on the secondary mortgage market to pension funds, insurance companies, and other investors. Mortgage-backed securities (MBSs) or mortgage bonds are sold to investors. Investment banks and the government-sponsored enterprises Fannie Mae and Freddie Mac package individual mortgages into these securities, which are sold on huge markets (Gerardi,2008). The pooling of individual mortgages can reduce risk because only a small number of borrowers are expected to default. Fannie Mae and Freddie Mac also guarantee the payments on the securities that they process (Gerardi,2008). Mortgages that conform to Fannie Mae and Freddie Mac standards, such as maximum loan to value, make up most of the secondary market, and the standardization of loans has allowed the market for these securities to grow. Conforming mortgage loan amounts must be below a threshold limit, adjusted to take average market price into account, or else the loans may be classified as jumbo loans, which have higher interest rates (Gerardi,2008).

Application of Concept

The Federal Reserve (Fed, the Federal Reserve) - specially created in 1913 an independent federal agency, to perform the functions of the central bank and the implementation of centralized ...