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Primary & Seconday Mortgage Markets | Real Estate Exam Prep Videos - YouTube
Channel: The Real Estate Classroom
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in today's video we're going to discuss
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what's called primary and secondary
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mortgage
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markets now these are very important to
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the real estate industry
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and so it's something you probably need
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to know a little bit about but it's also
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important because you need to know some
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of this terminology and some of these
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concepts for the real estate licensing
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exam
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as well so all of that in today's video
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[Music]
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all right the first concept i want to
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talk about is the primary mortgage
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market now understand we got to have
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both
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or otherwise you and i don't have a job
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right so if you're a real estate
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professional
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you depend on loan officers to help our
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buyers
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with loans we need we need
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companies for refinancing of of loans we
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need the secondary mortgage market
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to buy those loans so without both of
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these markets
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you and i as real estate professionals
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we just don't have a job
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all right but we have to know the
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difference between the two the primary
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market is the frontline
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loan people they're the the loan officer
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at the bank or the the mortgage broker
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that we send our buyers to or that we go
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to to refinance a loan
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they're the ones who fund the loan
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they're the ones who
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are taking applications and doing the
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qualifications and whatnot
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the secondary mortgage market is where
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those loans are
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sold to after closing and we have to
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know a little bit about
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both about we have to know a little bit
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about both
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uh for our exam now the primary mortgage
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market
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exists of companies like savings and
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loans insurance bank
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insurance companies commercial banks
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pension funds if you see the list of
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primary mortgage markets that i have on
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your screen here
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you'll notice that just about everybody
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and their mother are now in today's
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world providing loans
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even the states have got involved number
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eight there
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state housing bond markets so what some
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of the states have done
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is they issue bonds and they sell those
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bonds to
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investors and then they use the money
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from the sale of those bonds to fund
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loans now typically
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those loans are for uh lower
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socioeconomic type
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borrowers however everybody including
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state government is getting involved
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in in the in the mortgage market if you
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will so these are the companies
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and the entities that that uh generate
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the business now the secondary mortgage
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market is where those loans
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ultimately end up and later on in the
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video i'm going to do a schematic
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a process schematic of how it all works
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but there are a couple of entities that
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we really need to know for our licensing
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exam
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the the federal national mortgage
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association which is
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commonly known as fannie mae
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it was specifically created in the 30s
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to buy what's called the federal
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housing administration loan or fha loan
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now in my next video we're going to talk
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about
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specific loans like fha loans
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but that's what it was originally
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designed now it is broadened its base a
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little bit as the decades went on and
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and but it is a large secondary mortgage
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market that purchases those
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government-backed
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loans freddie mac is another one now
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freddie mac recently changed its name a
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few years ago
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it's formerly known as the federal home
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loan mortgage corporation
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and it was created to purchase
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conventional loans
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or those non-government-backed loans
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and then we have a third term you have
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to know it's called the government
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national mortgage association which is
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commonly known as
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genie may and genie may
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is actually a government entity it's a
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government agency that works
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under the the department of housing and
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urban development
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and it's a government agency and it
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issues certificates
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backing the mortgage-backed securities
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industry you don't need to really know
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too much more
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other than that but these three concepts
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or these three
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entities you do have to know something
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about
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now here is how the secondary mortgage
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process
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works and i have it on your screen the
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borrower walks into the bank
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and says i want to refinance my house or
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buy a house
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the bank who's the lender they
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they they take the application they
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schedule the appraisal they ensure that
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the borrower is
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approved or qualified for the loan
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amount that they need they apply the
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guidelines that have been written and
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established by freddie mac
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and fannie mae and if the borrower
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is qualified based on those
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guidelines including income and debt and
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all of that then it goes to closing
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the lender will facilitate the closing
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make sure all the documents and
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everything is done
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correctly and signed and recorded so on
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and so forth
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and let's say that the lender 12th
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street mortgage is our lender
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and it's a 250 000 mortgage
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well they're gonna originally fund that
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transaction so
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12th street mortgage is going to cough
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up 250 000
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out of their coffers to fund that
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transaction but obviously
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uh they wouldn't be able to do too many
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loans because quickly that whole poll of
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money that that individual lender has
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would dry up really quickly so they're
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the mechanism of the secondary mortgage
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market is to
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sell those loans to that secondary
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mortgage
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entity so they can always keep those
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coffers
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uh full of money to originate loans so
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the lender is going to do a couple of
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things after closing
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the lender is going to do what they call
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packaging
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or warehousing a bundle of loans
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depending on the loan size what happens
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typically
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is the if it's residential loans
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they will put you know 15 20 different
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loans together
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in one package they call it a mortgage
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portfolio
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you know 15 20 25 million dollars in
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residential loans then they pac as a
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package
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they will then sell it to the secondary
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mortgage market
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to freddie mac or or fannie mae
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depending on the type of loans and as
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you can see on your screen what
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technically happens is
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12th street mortgage is going to assign
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the rights to those
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that loan or all of those loans over to
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fannie mae or freddie mac now look what
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happens as you can see on your screen
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then uh then freddie mac or fannie mae
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then puts the money or the they
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basically
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determine the value and give that value
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back to the lender so then the lender
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has more money to generate more loans
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and that cycle just continues now
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there is a key term i have highlighted
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at the bottom you have to know
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it happens between the process where the
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lender
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is is selling the portfolio to let's say
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fanny fannie mae or freddie mac what's
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going to happen is
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there's going to be an estoppel
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certificate that is issued now
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an ostopical estoppel certificate
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is a document that verifies that the
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loan terms when the loan was made
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met the guidelines of freddie mac or
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fannie mae
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they met the guidelines and there was no
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shenanigans
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it is a certificate that basically says
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we verify that
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that these are good loans all right
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an estoppel certificate can also be used
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when
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an investor typically with not with
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residential investment property more so
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with like
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big dollar investments like commercial
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properties and industrial properties
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those type of things
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where a loan could be 10 15 20 million
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dollars in and of itself
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so what's going to happen is an estoppel
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certificate is sent out to
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all and all the tenants will verify
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the remaining amount or the remaining
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term of their lease
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and also the monthly rents because if
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i'm
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if i'm a lender i want to verify that if
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there is a commercial space with 10
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tenants in there i want to know how long
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each lease how much time is remaining on
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lee
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on each lease and what's the value of
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that lease
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that's important to determining whether
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or not this loan is going to be made
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well that document that's used is called
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an anestople certificate and you need to
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know that term in particular
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for your real estate exam right so
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that process happens though between the
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time that the
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the lender packages up the mortgages
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and sends them off uh for to the
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secondary mortgage market before that
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money is transferred those
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estoppel certificates are done that's
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how the process
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works alright so here's another
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schematic you have to know
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and and that deals with what happens
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once the
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once the lender sells that mortgage or
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that portfolio
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off to the secondary mortgage market
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well
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so what happens is the borrower starts
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making their monthly payments
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and they're going to make their monthly
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payments to whoever they're told to make
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them
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monthly payments to it could be wells
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fargo u.s bank or anybody else
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the key to remember the service provider
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may or may not be the person who owns
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the loan
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so you may be making your monthly house
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payment to
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wells fargo however wells fargo doesn't
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own the loan
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an investor owns the loan you'll never
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know who
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owns the loan but you're making your
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mortgage payment to wells fargo and then
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wells fargo then takes a small service
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fee
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out of your loan payment and then sends
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the rest off
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to the investor or what we call a
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mortgage holder
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um i was at a conference once i don't
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know five or six years
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ago and uh wells fargo and u.s bank and
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all of those type of
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folks were there and wells fargo made a
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comment that only
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20 about 20 or 21 percent of all the
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loans that they service
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they actually own they were 79 or 80
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percent of the the people that were
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sending their
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mortgage payments to wells fargo were
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actually just they were
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they were servicing the loan for
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somebody else i always found that
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interesting um i don't know why but it's
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just kind of an interesting concept so
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all right so don't forget my next video
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i'm gonna do is going to be on the
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specific types of loans
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like the veterans affairs affairs loans
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and the
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conventional loans so that'll be another
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good video for you to view but in the
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meantime if you're going to continue to
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study
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check out this video right here this
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one's going to be very helpful and
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hey by the way if you have not
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subscribed to our channel please do so
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click on the little circle to my left i
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would appreciate it
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i will see you in the next video
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