FI 413 Lecture Notes - Lecture 30: Federal Deposit Insurance Corporation, Stock Market Crash, Mortgage Insurance
Document Summary
Fatal flaw: funded long-term home loans with short-term deposits ("asset-liability maturity mismatch") Stock market crash of 1929: federal deposit insurance corporation ("fdic") Increased from ,000 to ,000 per depositor per bank as part of recent legislation. Large commercial banks provide "warehouse" credit lines for mortgage bankers. Increasing "term" or "permanent" real estate lending (cf. , short-term development and construction lending) Not a bank - no deposits (fund w/ warehouse lines of credit) May retain right to service the loan for a fee. Collect/remit payments for property taxes, hazard insurance and mortgage insurance. Receive fee based upon % of loan balance. Paid "interest yield spread premium" if rate higher than market (undisclosed until recently) May be used to fund closing costs ("no cost loans") Secure and fair enforcement for mortgage licensing act (safe act administered by cfpb) Lack of standardization in loans made analysis of risk/return and wholesaling difficult. Large regional differences in interest rates because of market inefficiencies (segmented)
