By Claire Boyte-White Updated Oct 27, The mortgage application form is the industry standard form used by nearly all mortgage lenders in the United States. This basic form, or its equivalent, is completed by a borrower when applying for a mortgage loan. While some lenders may use alternative forms or simply accept basic borrower information about their identity, property type, and value, the vast majority of lenders rely on the form. Generally, the form is completed twice during a mortgage transaction: once during the initial application, and again at closing to confirm the terms of the loan. Some lenders allow borrowers to complete the form at home, while others assist borrowers in person or over the phone. In either case, a potential borrower should understand the format and the information required before completing the form.
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Historically, most housing loans in the early s in the USA were short term mortgage loans with balloon payments. To address this, Fannie Mae was established by the U. As such, Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government. Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in  and in Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgage loans.
Bush signed the Housing and Community Development Act of In , Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the Community Reinvestment Act CRA of But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the s.
In , these rules were dropped and high-risk loans were again counted toward affordable housing goals. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families. Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates , interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans.
In early we began sounding our concerns about this "layered-risk" lending. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors.
Chuck Hagel. This contributed to a decline in underwriting standards and was a major cause of the financial crisis. Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas the GSEs guaranteed the performance of their mortgage-backed securities MBSs , private securitizers generally did not, and might only retain a thin slice of risk. Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps , making their actual risk exposures extremely difficult for investors and creditors to discern.
The shift toward riskier mortgages and private label MBS distribution occurred as financial institutions sought to maintain earnings levels that had been elevated during — by an unprecedented refinancing boom due to historically low interest rates. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the GSEs would not initially securitize.
Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete. As a result, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get loans.
This depreciation in home prices led to growing losses for the GSEs, which back the majority of US mortgages. In July , the government attempted to ease market fears by reiterating their view that "Fannie Mae and Freddie Mac play a central role in the US housing finance system".
Fannie stock plunged. Others worried about a government seizure. Treasury Secretary Henry M. Paulson as well as the White House went on the air to defend the financial soundness of Fannie Mae, in a last-ditch effort to prevent a total financial panic. Fannie and Freddie bonds were owned by everyone from the Chinese Government , to money market funds , to the retirement funds of hundreds of millions of people. If they went bankrupt there would be mass upheaval on a global scale.
Their government directive to purchase bad loans from private banks, in order to prevent these banks from failing, as well as the 20 top banks falsely classifying loans as AAA, caused instability. The action was "one of the most sweeping government interventions in private financial markets in decades". The value of the common stock and preferred stock to pre-conservatorship holders was greatly diminished by the suspension of future dividends on previously outstanding stock, in the effort to maintain the value of company debt and of mortgage-backed securities.
FHFA stated that there are no plans to liquidate the company. Treasury to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to.
Since then the stocks have continued to trade on the Over-the-Counter Bulletin Board. It borrows in the debt markets by selling bonds, and provides liquidity to loan originators by purchasing whole loans. It purchases whole loans and then securitizes them for the investment market by creating MBS that are either retained or sold.
It must legally ignore adverse market conditions which appear to be unprofitable. If there are loans available for purchase that meet its predetermined underwriting standards, it must purchase them if no other buyers are available.
Because of the size, scale, and scope of the United States single-family residential and commercial residential markets, market participants viewed Fannie Mae corporate debt as having a very high probability of being repaid. Fannie Mae is able to borrow very inexpensively in the debt markets as a consequence of market perception. This was called "The big, fat gap" by Alan Greenspan.
Fannie Mae also earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on mortgage loans underlying its single-family Fannie Mae MBS and on the single-family mortgage loans held in its retained portfolio.
Fannie Mae buys loans from approved mortgage sellers and securitizes them; it then sells the resultant mortgage-backed security to investors in the secondary mortgage market , along with a guarantee that the stated principal and interest payments will be timely passed through to the investor.
This gives the United States housing and credit markets flexibility and liquidity. Fannie Mae produced an automated underwriting system AUS tool called Desktop Underwriter DU which lenders can use to automatically determine if a loan is conforming; Fannie Mae followed this program up in with Custom DU, which allows lenders to set custom underwriting rules to handle nonconforming loans as well.
This is known as the "conforming loan limit". OFHEO annually sets the limit of the size of a conforming loan based on the October to October changes in mean home price, above which a mortgage is considered a non-conforming jumbo loan.
The conforming loan limit is 50 percent higher in Alaska and Hawaii. The GSEs only buy loans that are conforming to repackage into the secondary market, lowering the demand for non-conforming loans. This changed in Ginnie Mae was split off from Fannie. Ginnie retained the explicit guarantee. Fannie, however, became a private corporation, chartered by Congress and with a direct line of credit to the US Treasury.
The charter also limited their business activity to the mortgage market. In this regard, although they were a private company, they could not operate like a regular private company. Fannie Mae received no direct government funding or backing; Fannie Mae securities carried no actual explicit government guarantee of being repaid. This was clearly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae.
The certificates did not legally constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae. During the sub-prime era, every Fannie Mae prospectus read in bold, all-caps letters: "The certificates and payments of principal and interest on the certificates are not guaranteed by the United States, and do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae.
For example, the implied guarantee allowed Fannie Mae and Freddie Mac to save billions in borrowing costs, as their credit rating was very good. Government would never allow Fannie Mae or Freddie Mac to fail. The additional leverage allows for greater returns in good times, but put the companies at greater risk in bad times, such as during the subprime mortgage crisis.
FNMA is exempt from state and local taxes, except for certain taxes on real estate. That is, a worst-case default would drop a fund not more than five percent. However, these rules do not apply to Fannie and Freddie. It would not be unusual to find a fund that had the vast majority of its assets in Fannie and Freddie debt. But in the place of federal funds the government provides considerable unpriced benefits to the enterprises Government-sponsored enterprises are costly to the government and taxpayers
Historically, most housing loans in the early s in the USA were short term mortgage loans with balloon payments. To address this, Fannie Mae was established by the U. As such, Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government. Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in  and in Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgage loans. Bush signed the Housing and Community Development Act of In , Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the Community Reinvestment Act CRA of But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the s.
The 1003 Mortgage Application Form
Aly J. Also called the Uniform Residential Loan Application, Form is the standard application form used by most mortgage lenders in the U. What Is the Mortgage Application Form? Its Freddie Mac equivalent is Form Both forms are based on the Uniform Loan Application Dataset and require the same information from consumers upon applying for a residential mortgage loan. Both Form and Form 65 were recently redesigned, though these updated forms have yet to go into use just yet. Who Must Use Form ?
What is Fannie Mae Form 1003?