TWO MAIN CATEGORIES Residential Mortgage Classified According
To: Lien Status Credit Classification Interest Rate Type
Amortization Type Credit guarantees Loan Balances Prepayments and
Prepayment Penalties
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TWO MAIN CATEGORIES Commercial Mortgage (Income Producing)
Classified As: Multifamily Properties Apartment Buildings Office
Buildings Industrial Properties Shopping Centers Hotels Health Care
Facilities Others
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CLASSIFICATION Lien Status Indicates the loans 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 off
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CLASSIFICATION Credit 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 between
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CLASSIFICATION Interest 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 maturity
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CLASSIFICATION Credit 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 Loans
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CLASSIFICATION Amortization - 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 paid
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CLASSIFICATION Prepayment: When all or part of the principal is
paid off prior to its scheduled maturity Partial Prepayment or
Curtailment Lowers total interest paid Pays off loan faster Call
Option Borrowers right to prepay a loan in whole or part without
penalty Prepayment Penalty Mortgage A mortgage design that will
penalize a borrower for paying off the loan before maturity
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COMMERCIAL 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
propertys net operating income divided by the debt
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BALLOON 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
default
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SUMMARY Two Categories Residential or Commercial Most Common 30
/ 15 year fixed 30 / 15 year ARM Balloon Classifications Lien
status Credit Classification Interest Rate Type Amortization Type
Credit Guarantees Loan Balances Prepayment and Penalties