Slide 1Discussion PointsTwo Main CategoriesTwo main CategoriesClassificationClassificationClassificationClassificationClassificationClassificationCommercial mortgagesBalloon MortgageSummaryMORTGAGE TYPESRYAN BIZONDISCUSSION POINTSCategoriesCategoriesClassificationsClassificationsCommercial MortgagesCommercial MortgagesBalloon MortgagesBalloon MortgagesSummarySummaryTWO MAIN CATEGORIESResidential Mortgage Classified According To:•Lien Status•Credit Classification•Interest Rate Type•Amortization Type•Credit guarantees•Loan Balances•Prepayments and Prepayment PenaltiesTWO MAIN CATEGORIESCommercial Mortgage (Income Producing) Classified As:•Multifamily Properties•Apartment Buildings•Office Buildings•Industrial Properties•Shopping Centers•Hotels•Health Care Facilities•OthersCLASSIFICATIONLien Status•Indicates the loan’s seniority in the event of the forced liquidation of the property because of default by the obligor.•First Lien – A lender is first in line during liquidation of property•Second or Junior Lien – A lender comes after the first lien status is paid offCLASSIFICATIONCredit Classification•Prime Loan – Borrower has strong employment and credit histories with enough income to make payments•Subprime Loan – Borrower has lower credit quality•Alternative-A Loan (alt-A) – Area betweenCLASSIFICATIONInterest Rate Type•Fixed-Rate Mortgage •Adjustable-Rate Mortgage (ARM)•Index•Periodic Caps / Life Caps / Floor Caps•Hybrid ARM•Most have a 30 or 15 year maturityCLASSIFICATIONCredit Guarantees•Government Loans•Backed by the federal government•Department of Housing and Urban Development (HUD)•Federal Housing Administration (FHA)•Generally small down payment and low level of income•Veterans Affairs (VA)•For veterans and reservists•Private Mortgage Insurer•Conventional LoansCLASSIFICATIONAmortization - Amount of loan payment that repays the principle borrowed•Fully Amortizing Loans•Fixed Rate•Recasting The Loan•ARM•Interest-Only•Lockout Period – Period of time where only the interest is paidCLASSIFICATIONPrepayment: When all or part of the principal is paid off prior to it’s scheduled maturityPartial Prepayment or Curtailment•Lowers total interest paid•Pays off loan fasterCall Option •Borrower’s right to prepay a loan in whole or part without penaltyPrepayment Penalty Mortgage•A mortgage design that will penalize a borrower for paying off the loan before maturityCOMMERCIAL MORTGAGES•Income-Producing Properties•Nonrecourse Loans – If borrower fails to make payments the lender can only look to the income-producing property to make the interest and principal payments.•Value is based on properties’ cash flow capabilities•Performance Indicator•Debt-to-Service Coverage Ratio: ratio of a property’s net operating income divided by the debtBALLOON MORTGAGE•A mortgage that does not fully amortize over the life of the loan•Due to this there is a large lump sum due at maturity of loan•Balloon mortgages are typically used in commercial properties rather than residential•Can have a fixed or adjustable interest rate•Used when increase in income is expected or borrower plans to sell property before balloon•In Default•If a borrower fails to make balloon payment•Lender can extend the loan•Default Interest Rate•Higher interest rate charged once borrower is in defaultSUMMARYTwo Categories•Residential or CommercialMost Common•30 / 15 year fixed•30 / 15 year ARM•BalloonClassifications•Lien status•Credit Classification•Interest Rate Type•Amortization Type•Credit Guarantees•Loan Balances•Prepayment and
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