Assignment of Mortgage

Assignment of mortgage is a legal document that is used to assign the security interest in real property. Beneficiary/lender/financial institution lends certain loan amount to a borrower and keeps some collateral for security purpose this is where a mortgage starts. But a small lender can not hold those collateral's for very long period of time. At one point of time this small lender should approach a bigger lender to assign those collateral's and get money for the continuity of the business. This is the reason why the lenders follow the rules and guidelines set by big financial institutions like Fannie Mae and Freddie Mac at the time of issuing a loan. In doing so, there will not be any problem when the lender assigns documents to above mentioned banks. When big lenders purchase the mortgages they follow the pooling system (creamed loans as per the good selection).

So when ever there is an assignment of mortgage, it has to be recorded at the local county office in the public records to change the lien holder on an existing debt. Unrecorded documents are not considered and accepted as the valid transfer of assignment. This document includes some important information like assignor and assignee apart from the mortgage recording details in the body of the document. The assignor is the party who assigns or transfers the mortgage and the assignee is the party to whom the mortgage is assigned. A mortgage date is written at the bottom of the document and lastly the signature of the borrower at the bottom right hand. Some times the document contains the history of assignments till the final assignment, assignors and assignees and the recordings of those documents.

Cash-Out Refinance

Cash-out refinancing means refinancing a loan where a borrower will be benefited to take out some money on his own home (collateral). It is a situation where a borrower needs some extra money over and above the outstanding balance which has been paying on the previous mortgage. It is a process where a borrower can apply for a loan with the proceedings of sale of earlier loan.
Cash-out refinancing will promote some extra cash to a borrower and a very good option for minimizing the monthly installment over a longer long period of time. Complete terms and conditions regarding monthly installment and rate of interest will be changed as per the market rates available.

The concept is more widely explained through an example. Let us say, If a home is appraised at $100,000 and the borrower outstanding mortgage loan amount is $60000, meaning he has paid $40,000 as installments till the time. As per the loan to value (LTV) ratio, a lender can provide 80% of the appraised value which is in this case is $80,000 (80% of $100,000). The new mortgage loan amount of $80,000 will payoff the $60,000 loan and the rest leave $20,000 is remaining in the hands of borrower. This $20,000 is cash-out to the borrower.

Some of the reasons for cash-out refinance are discussed below:

• To lower monthly installments
• Make cash on the same property and save money
• To replace old mortgage loan with new mortgage loan with more favorable loan terms
• When a borrower needs urgent cash and he has nothing to keep as collateral to take a fresh loan

Second Mortgage

Apply for one more mortgage (second mortgage) loan on the same property. This is similar like a mortgage but this mortgage has a lien position subordinate to the first mortgage. All criteria part has to be fulfilled to this mortgage also like as it is in case of first mortgage provided the equity of the collateral has to be qualified for second mortgage. Equity of the collateral must carry the value so that the borrower can apply for second mortgage. As far as lender is concern it carries bit more risk because he has to suffer from both the mortgages if anything goes wrong with the borrower although he has taken care of appraisal value and all processing part. Any settlement regarding the claims goes first preference to the first mortgage and second mortgage considers as subordinate to the first.

There are some cases where more than one loan has been allowed on the same collateral. Whenever a loan registers in a country or city first one registers as first mortgage and if second loan registers it will be called as second mortgage. Some times in a very rare case a property can be utilized for third or fourth mortgages also. All installments and interest rates charges will be different and terms and conditions are also different on both the mortgages as per the Promissory note agreement. Any future claims or in case of bankruptcy file the proceedings will be started to the first mortgage then the preference goes to the second mortgage.

Types of Ownership – Mortgage

An individual/a single person, a group of people, a partnership and an organization/a corporation can be a owner of the property. A property always belongs to one or more owners and those owners hold the ownership of that property.

Some common types of ownerships are discussed below:

Joint Tenancy: In this ownership each individual/partner owns an equal share of the mortgage. The important part is, if any individual expires, the ownership of the deceased person automatically goes to the other joint tenants of the mortgage.

Tenancy by the Entirety: This is very similar to the joint tenancy but it can be done only in case of husband and wife. Debts of the both husband and wife can be attached to the property and upon the death of one tenant, ownership passes to the other tenant of the mortgage property. However, in case of divorcee, this will not work and there will be no automatic pass of ownership to surviving tenant of the mortgage property.

Tenancy in Common: This is a joint tenancy with no rights will be passed to the other tenants in case of death of any tenant. This means, upon the death of one of the tenants, the ownership of the property does not transfer to the surviving tenant/tenants. In this ownership, each tenant can sale the individual interest of the ownership with out affecting the joint interest and other tenants have no right to stop the proceedings.

So these are the common types of ownerships that are popularly used in the mortgage industry of United States America.

Foreclosure

When a borrower unable to pay loan amount as per the terms and conditions set before the loan proceedings and not even able to file for bankruptcy, then the mortgaged property will be sold during a legal process. Foreclosure is a legal process in which the property will be sold and the amount produced out of the sale will use to meet the outstanding debt in case of default.

A borrower should go for foreclosure when all other options are failed. Borrower informs the lender about his willingness to sale the property and collects the outstanding debts. If the property value/the sales value is more than the outstanding debt, the lender will return the excess amount to the borrower. In case the sales value is not sufficient to the outstanding debt, then the borrower needs to pay the deficient amount resulting from the sale of the property to the lender. If the lender forgives any deficient amount, then probably the borrower has to pay taxes on the forgiven amount.

Mortgage Company’s initiates foreclosure proceedings as quickly as possible because of following reasons: Foreclosure is
• Very Expensive
• Time consuming (can take more time, some times months)
• Strictly governed by investor guidelines
• Strictly governed by laws and regulations
Events that are responsible to make the process slow or stop foreclosure include:
• Bankruptcy
• Deed in lieu
• Sale of property

The big disadvantage out of this process is, it effects on borrowers credit rating and it effects on credit report for about 7 years from the date of foreclosure sale. The borrower may not be eligible to qualify for any loans further and even if any lender agrees to provide a loan, they will charge high rate of interest.

Chapter 13 - Bankruptcy

Before a debtor files for chapter 13 bankruptcy, debtor should know about all the laws that cause it and many more things those are involved in this bankruptcy file. One of the most important things a debtor needs to concentrate about is, he should be having standard of income, no matter it is daily, weekly or annually. There is some eligibility that a person has to follow to apply for this bankruptcy file. A debtor has to keep one thing in mind that he has to make a plan for repayment under any circumstances. By doing this effort, the creditors come to know about the intention of the debtor to repay his debts and he has some opportunities to repair his credit score. A debtor who files for chapter 13 bankruptcy can apply for a fresh loan after 6 months of repaying the old credit whereas this has not been the case in other bankruptcy cases.

But any debtor who applies for chapter 13 bankruptcy needs to qualify for that.

Means test: The debtor should have a steady income and he should be in a capable position to repay certain amount of debts. If his income is more than the median income, he can be eligible for chapter 13 bankruptcy.
Income proof: The debtor needs to submit recent tax return file approved by the federal government.
State Exemption: The debtor must be a resident of that particular state for 2 years.
Credit Counseling: The debtor has to go for credit counseling session within 6 month prior to the date of applying for it.

After qualifying for the chapter 13, a debtor should make a plan of re-payment and show it to the federal law court appointed trustee.. After making a plan if the debtor fails to pay the repayment due to job termination, the court will again give a chance to remake a plan. There is a possibility to convert him to chapter 7, if he fails to keep the 2nd time payment plan.

To the extent possible, a debtor must try to work hard to avoid the bankruptcy. A debtor should have an idea about filing a bankruptcy should be the last option to go for.

Chapter 7 – Bankruptcy

When a debtor has no option to repay his debts to the creditors/lenders and if the creditors suit a case against a debtor, definitely the debtor should go for chapter 7 bankruptcy. A chapter 7 bankruptcy is all about, a debtor can pay off his debts by selling all his/her assets under the supervision of the court or the court appointed trustee.

A debtor can file chapter 7 bankruptcy under the following situations given below:

• Debtor has nothing cash to pay off all the debts
• Creditor suit a case against debtor
• Some of accounts are still in collection

A debtor needs to qualify to apply for chapter 7 bankruptcy. He can not simply apply for chapter 7, there are certain criteria to be fulfilled in order to qualify for chapter 7 bankruptcy.

Means Test: If a debtor’s income is less than the median income in the specific state where he resides, he can be eligible to qualify for chapter 7.

Credit Counseling: The debtor has to go for credit counseling session within 6 months prior to the date of applying for it.

Prior Bankruptcy: A debtor who is applying for the chapter 7 should not be the person applied for the bankruptcy chapter 7 with in past 8 years till the date.

In chapter 7, a debtor needs to list out all his assets which can be sold out for the purpose of making payment to creditors. The court appointed trustee will decide which are the assets can be sold off to repay the debts. Properties like liquid assets, which are Cash, household items, life insurance proceeds, personal property or the property which own by the individual or with a co-owner.

There are certain exemptions provided by state as well as federal, state exemptions depend on state to state. There are some states which allow debtors to go with the federal exemptions or state exemptions for Chapter 7 bankruptcy at the same time some other states allow the debtors only to avail state exemptions. Any asset which exceeds the state or federal exemption can be utilized to pay off the debt. In case of a house, if there is no equity in the house, it can not be utilized to pay off the debts. In case of a car, if a debtor’s car has more equity as per the federal or state exemption, it can be sold out to pay off the car loan.

Promissory Note

A promissory note can also be called as a “note”. Note is the first document to be prepared before mortgage/deed of trust. This is the document which includes all the promises from the borrower and signed by him and handover to the lender. He promises to pay the given loan amount at the specified interest for a certain period of time. It contains all the information regarding terms and conditions of the loan. It contains some more important information regarding loan details like

• The year of completing the last installment
• The interest rate that is operating and the type of interest that has been chosen
• The address of the property
• The Note date which can be called as the mortgage date
• The loan amount
• At last the signature of the borrower down the document.

The note makes the borrower legally obligated to repay the loan amount and is generally secured by a security instrument.

There are two main and most common security instruments are:

• Mortgage
• Deed of Trust

There are two parties involved in the mortgage, the lender and the borrower. In this security instrument (mortgage), the borrower pledges the property as security for the repayment of the mortgage note.

There are three parties involved in Deed of Trust, the lender, borrower and the trustee. To some extent, trustee acts on behalf of the lender, so the property and the property related issues and to collect the repayment of the loan are look after by the trustee for the benefit of the lender. There is an advantage of the deed of trust when we compare with mortgage i.e. in many of the states, in case of default, the deed of trust can be foreclosed by the trustee. A trustee can sale the property with out having court proceeding.

Mortgage Payoffs

When a borrower takes a loan against a property, he/she has to repay that loan amount and a day will come when the borrower pays his/her last installment. This is a normal process that happens at the end of the mortgage loan life cycle. Borrower sends a payoff letter through an attorney or an agent or a title company, stating that this is my last installment to be paid and expectedly I should get my property documents after my last payment paid. On the request, the lender arranges borrower’s property documents and keeps those till 90 days of receiving the final payment. After that, lender sends those property documents to a specific county and sends a letter to title company to collect the property documents from that particular county.

A loan may payoff due to several reasons. Most of the times a mortgage loan can be paid off for one of the following reasons:

Maturity date has reached – Once a borrower reaches to last installment to be paid, a lender suppose to release property documents.

Property has been sold – If property has been sold, a lender has got no rights to keep the property documents with him and should release the property rights as soon as possible.

Property has been re-financed – Generally people go for re-finance when there is a change in interest rate in the market or to make some cash out money when there is a hike in equity of the property. In such cases, borrower needs to pay off the earlier loan before going for a re-finance.

There are certain other important points that a borrower needs to look after for payoff a mortgage loan. They are given below

* Is there any remaining balance to be paid
* Any interest due till the payoff date
* Any outstanding late charges
* Other outstanding fees or any charges
* Borrower sends a final “payoff check”, full remaining loan amount
* Remaining Escrow funds returned to borrower
* Prepare payoff necessary release forms
* Borrower releases from debt
* Documents are released

Credit Repair

There are three credit bureaus available in the market to provide different kinds of credit score reports. But not necessary all three national credit bureaus provide same report, at the same time lenders can not simply ignore any one of those. Each individual bureau provides a score by using Fico credit score model developed by Fair Isaac Corporation. This has been a commonly used one through the United States of America. The higher the credit score rate, the lower will be the risk in offering a loan. An individual can have a good picture by having independent credit data report provided by credit bureaus. If a person gets bad credit report, it may leave you homeless, jobless and you can not even get a loan without which living is not so easy in one of the developed countries like USA.

So you can contact the companies who help you to get out of the credit. The companies are specialized in credit repair. They have helped lot of people who suffered with lots of credits. They took the challenge and have developed credit monitoring programs by which they helped the consumers a lot. People can also help themselves to make repair to their credit by applying some key reasons. Here are the reasons discussed below to repair or improve your credit by taking some measures so that you can manage your credit score better

• Save money on interest
• Stop paying cash at every where
• Get a higher credit limit
• Payoff higher interest debts first
• Negotiate with the creditors
• Clear off all past dues as soon as possible
• Request creditors to all the creditors to erase the late payment entries once you re-start paying in time.
• Improve your credit history
• Don’t close older accounts in a short period of time
• Manage new credit efficiently by decreasing unnecessary expenses and need to have a plan in mind about your income and credit.
• Don’t go for installment loans as it decreases credit score

Apart form this, there are so many credit counseling agencies which provide credit erase tips and manage your debts. These agencies are not the same as credit bureaus, and these agencies help you to improve the financial conditions.

Mortgage Appraisal Review

The mortgage appraisal review report displays the estimated value of the property based on the market conditions. It supports the underwriters to calculate the correct value of the property and enables to decide whether the property carries sufficient value for the loan process. Based on this report the underwriters can advise the lenders or the lending institutions the best loan amount to be issued to a borrower.

If a borrower defaults in the repayment on a mortgage loan and can not keep the agreement words as per the mortgage note and deal signed by him, the lender or the investor who has the right to foreclose on the property and can sell it in the market and recover his investment. If the property value is not more than the mortgage loan amount, the lender or the investor will suffer a loss.


Now a days many of the states issue certifications to the qualified appraisers and they can only be the valid appraisers to appraise the property.

To know exactly the process of the appraisal and role and responsibilities of the appraiser, one should first understand the duties of an appraiser. The processor has to contact the appraiser to perform the appraisal. The appraiser must be able to provide complete legal structure, objectivities, geographical picture and the proper value of the property without any biasness. He must have a complete knowledge about the surrounding areas, survey of the area, building construction, flooding area, legal descriptions and marketing conditions.

There are certain more factors based on which an appraiser must prepare the report, the following are the factors:

• He should analyze the sales prices of neighborhoods
• He should examine the property interior and exterior conditions
• He should analyze the climatic conditions whether the property value will grow up or decline
• He should study the area whether the public amenities are available to the property
• He should examine the three comparable properties that have sold recently and are having similar type of resident with subject to size, location and similar features.
• He should also need to examine the incoming source in case of property uses for rental purpose

After taking all the above factors into consideration, the appraiser should make the appraisal report and hand over to the processor and the processor should hand over this report with all other verification reports to the underwriters.

Loan-To-Value (LTV) Ratio

The importance of loan to value ratio calculation in the mortgage lending process is very high, because loan to value ratio shows the percentage of loan amount that is to provide to the borrower on his loan apply. Borrower may ask for larger amount on his property but that has to be valued and estimated as per the surrounding properties. How much loan amount has to be issued depends on the borrower’s equity in that property. Banker or a lender never issues mortgage loan amount more than 80% of the equity of the property. If in any of the cases, the loan to value ratio exceeds 80% then the lender requires private mortgage insurance (PMI) from the borrower. It protects the lender from the loss in case of borrower defaults to repay the mortgage loan amount. To calculate the loan to value ratio, the lender needs to divide the loan amount with the sales prices or appraised value (which ever is less). An instance of loan to value calculation is given below:

Loan Amount $100,000

Sales Price $200,000

Appraised value $220,000

LTV Ratio = Loan amount/ Sales Price or Appraised Value (Which ever is less)

= 100,000/200,000 = 50%

In the above example the lender has no risk to take and there is no requirement of asking borrower to go for PMI. The borrower asked only 50% of the equity of the property which is less than the 80% and the appraised value is also more than the loan amount. So the lender is in a good position to provide a loan to the borrower, because even if the borrower does not repay the debt amount and walk away from this loan process, the lender can sell the property and recover the loan amount. Any excess amount out of the sale of the property returns to the borrower.

So the LTV ratio plays an important role in the mortgage loan process. Any lender provides a loan with out going for this calculation may face some problems in the recovery of loan amount.

Underwriting – Mortgage lending cycle

Underwriting is very crucial and integral part of whole mortgage lending process. In this phase the documents are verified in a detailed manner and review the process before going to submit the final report. Underwriters review the property and credit report of an applicant to evaluate this process.
Underwriters analyze the process in such a way so that they can find out how risk involved in the loan package and they need to follow certain guidelines prepared and followed as per the Fannie Mae and Freddie Mac, because they are the quality and ultimate investors. Fannie Mae and Freddie Mac provided certain software’s for the loan approvals and underwriters need to check whether the loan qualifies as per the requirements or not. If any document is lack of required information that needs to be informed to the applicant so that he/she can supply the same for the completion of the document process.

In addition, underwriters need to analyze the risk factors of a loan package and it includes four C’s to be verified. Following are the 4C’s need to be verified

Capacity: The applicant should have a regular incoming source, no matter daily, weekly or annually to meet the regular house holding expenses. His stability and ability needs to be checked in the process whether he is capable enough to repay the mortgage loan. There are different qualification ratios available in the mortgage market to find out the capacity of an applicant. Secondary market agencies and government agencies never follow the same one. Each one follows different criteria to evaluate this ratio. But the underwriters should follow the one which is accepted by the Fannie Mae and Freddie Mac.

Capital: The applicant should have some liquid assets with him for the expenses that are involved to complete the loan process. Closing costs include so many expenses the applicant should pay before the closing of loan process and an applicant needs to pay some down payment. Applicant’s assets have to be verified to analyze the capital and certain verifications have to be done such as verification of deposits, verification on stocks and bonds, verification on sale of any real estate, life insurance policies and gifts etc..

Character: Some debtors are capable enough to repay the loan amount but they don’t pay in time. Underwriters review the credit report to evaluate the willingness of repay the loan amount. They review the other documents and information supplied in the application and submitted by the processor for the completeness of the loan process. Credit history shows the clear picture of repayment of past debts and applicant intention towards repayment of mortgage debt.

Collateral: Loan-to-value (LTV) ratio is necessary to evaluate the appraisal value of the property. Appraisal value is the correct value of the property. This value has to be determined after taking the consideration of other similar properties around the area. So the appraisal value is important to estimate the risk involved in the loan package.

Approving the Loan: After studying all 4C’s, underwriter needs to produce an approval or decline letter. After underwriter approves it, the mortgage banker or lender issues a commitment letter to the borrower and this is the final step of mortgage loan process before they close it legally.

Processing – Mortgage lending cycle

This is second phase of the mortgage lending cycle. After the origination part which covers the soliciting customers for loan applications, the processor responsibilities are huge to discuss and vital as far customer document submission is concern for the approval of a loan. The processor needs to check all the documents like 1003, 1008, statement of assets and liabilities and some other documents which are required for the loan application. Processor checks those documents to make sure that the customer has submitted all the documents and are included in the application package. The documents need to be reviewed for the accuracy and send the information obtained for the verification.

In addition to that, the processor is also needs to check whether the customer has submitted the appraisal report on the property and completes the documentation process by obtaining all necessary documents and reports. Lenders generally use the URLA (Uniform Residential Loan Application) form of Fannie Mae or Freddie Mac. Basic information that URLA form has got are three types Borrower, Property, loan and transaction.

Borrower information includes Name of the Applicant, Social Security Number, Current Address, Employment history, Salary and Income information, Borrower’s assets and liabilities any public records of the borrower such as foreclosures and bankruptcies, current house rent and any mortgage payments.

Property information includes Address of the property, how old the property has, number of units need to be mentioned, legal description of the property and the property which is using is the primary or secondary needs to be clearly mentioned.

Loan and transaction information includes which type of loan and loan program is opting, loan amount and the interest rate, purpose of the loan, supposed housing expenses and some details of the transaction.

In addition to those, there are certain verifications which have to be conducted in this phase only are VOD, VOE, Verification of credit report and Appraisal Review Report.

Verification of Deposits: This phase basically speaks about the assets and liabilities that the borrower has and the processor has to send to financial institutions for the verification of assets, bank balances, stocks and bonds.

Verification of Employment: The information that has been given in the mortgage loan application needs to be verified from the employer. Through this phase the processor will come to a decision about the stability of the applicant to repay the mortgage loan.

Verification of credit Report: Processor needs to order a credit history report of the applicant to judge and come to a conclusion about how risky the applicant if he will be issued a loan. The credit report includes credit card no., installment loan, student loan, automobile loans, mortgage loan and how the applicant played those loans.

This whole information gives a clear picture to a lender to review the applicant’s readiness, willingness to repay the loan.

Appraisal Review Report: The appraisal review report is very important aspect of a loan application. The appraisal value is the actual value of the property. If the value of the property is less than the loan amount, the lender has to suffer a loss in case of foreclosure. So ascertaining the appraisal value is important to the lender because in case of foreclosure the lender has to sale the property and gets back the loan amount.

Origination – Mortgage lending cycle

The role of the mortgage loan originator or the loan officer is to make customers fully aware of the mortgage market conditions and the market available financial flexibilities. The loan originator plays an important role in bringing the mortgage banking investment quality loans. He needs to have a broad idea about the market because the customers approach the loan officer for the basic idea about the mortgage market and the suitable loan for him. So the loan originator should have a complete knowledge about the mortgage market and he should have good explanation power so that he can make the customers understand better and bring quality loan investments.

The success of the loan originator depends on his/her knowledge about the mortgage market in-depth. He should have sufficient idea about the loan production process and the mortgage lending cycle. Moreover, the loan originator needs to have in-depth knowledge about some of the areas like different types of loans and loan programs available in the mortgage market and should explain the customer about the major players available and their roles. He should inform the customer regarding the documents required for the initial process and explain about the documents importance. Loan originator needs to inform the customers about the physical conditions of house or units available in the market and identifying groups of people to work with the parties such as builders, developers and real estate agents.

So without understanding and knowing about these above factors the loan originator can not become a successful sales person. He should have a proper plan with him before a customer approaches him and should have good convincing power also. Until and unless the loan originator has these qualities with him, he may not guide any customer. So his knowledge on the mortgage market and guidance to any customer is very important for a customer to go with a suitable loan type and program.

Closing – Mortgage lending cycle

There are four set of functions that are involved in the mortgage loan production. They are Origination, Processing, Underwriting and the closing. Every process need to be required certain legal documents for the completion of the mortgage lending transaction.

Closing the loan, does not mean the end of the mortgage life cycle, but to continue with the servicing part of the loan till the time it is paid off or loan has been refinanced or foreclosed. For the closing part, the closer needs to prepare and review the legal documents required for the completion of the mortgage lending transaction. There are 7 closing documents that are required for every loan closing, namely Promissory note, Security instrument (either Mortgage or Deed of Trust depending on the state location), Deed, Truth in Lending Disclosure Statement, Uniform Settlement Statement (HUD-1), Title Insurance Policy and Hazard Insurance Policy.

The closer need to complete the preparation of the closing documents and need to review of each document for the accuracy purpose. After the review part is over, the closer need to send it to the closing Agent and he can be one of the following:

An outside attorney
A title insurance company
An escrow agent or the closing staff of the mortgage banker.

If the loan is not closed by the mortgage banker and it is closed by some other person, the mortgage banker needs to collect an insured closing letter from the closing agent. However, the responsibility goes on mortgage banker to maintain the accuracy of closing documents and procedures. The closer needs to identify and maintain a list of the funds that have been delivered to the settlement agent. So the responsibility goes on the settlement agent for distributing the funds to all the people who are involved in this transaction.

No Teletrack Loans

If any citizen of USA wants to take a loan, that person needs to know about the market and the market available interest rates. The borrower need to approach the loan officer to have an idea about the loan process and need to submit some of the important documents like verification of credit history, Verification of Employment (VOE), verification of Deposits (VOD) and other required documents.

But there are certain financial institutions which provide loans with out checking of the above verifications called “No teletrack loan providing companies”. These companies provide payday loans when people have very bad credit history, no deposits with them and no proper employment can be shown but they need loans in some urgent cases. They don’t have any collateral to place and take loan against them. Even in these cases, No Teletrack Loans companies provide loans without any credit check. The company issues these loans not for longer period of time and no securities are required and hence the company charges more interest on the loans. These are all short term loans and borrowers need to pay the return money on time. Borrowers need to supply very minimum information regarding financial and personal and the idea is very simple to understand about the loan process. Borrowers who apply for this type of loans will get within a short period of time and the loan limit will be between very small ranges like $50 to $2000. This type of loans basically help the people who are looking for instant cash for one week or 10 days and they can return it on the agreed date.

Reverse Repo Rate

Government of any country has complete command over the market situation where money flows from all the ways. If market has got excess money over the demand, government issues security bonds through the banks or financial institutions to get back that surplus money and if market running with the sort of money then government provides loans to the banks to make money available in the market. Reverse repo rate is one of the policies of the government to control the surplus money with the banks working under it.


Reverse repo rate is the interest rate that a government needs to pay to the banks on the deposits received from them.

When ever the government decreases the repo rate, the banks working under it will have sufficient capital with them for the continuity of the public deals and some times there is a high possibility of having surplus money than required money with them. If banks have more capital with them which is over and above the actual requirement, they need to deposit the excess capital with government bank as per the government rules and policies are concern and government needs to pay some interest for that deposit, otherwise this is where the market can be overflowed with the money and money value can be drastically decreased. So there will be a high demand of the government to control this excess money flow and decrease the interest rate on the deposits that are received from other banks of the country which are working under the government. In these circumstances, the government has full control over the market by decreasing/increasing the repo and reverse repo rates as and when government realizes as per the market situation demands. Hence the government decreases reverse repo rate to minimize the interest paid money to the banks and maintain the capital flow between them to have control over the market.

Benefits of decreasing Repo Rate

People need to have minimum knowledge about the govt. policies and impact of these policies on the market and in turn how it is helpful to the citizens of any country. Decrease repo rate is one of the most impacted policies of any government. Although the govt. may change it from time to time based on the countries economical and marketing conditions, there is a purpose behind the decrease in repo rate to make adjustable liquidity with the banks in the market to help the individuals/organizations by providing loans on a moderate interest rate.

People may not lead a life of good taste if they are not in a position to meet their needs. People/organizations approach banks when ever they need loans for the continuity of their activities. If banks do not able to provide loans and fail to maintain sufficient capital with them, there is a chance of high unemployment in the country and easy ways of getting loans from government institutions or banks can really help a lot. In such situations, government decreases the repo rate to make more liquidity with the banks and then banks can be able to lend money to individual/organizations to run their necessary activities/business. Decreasing Repo rate, meaning the government decrease interest rates on the money lending to the banks. So banks do not require to pay more interest to the government and at the same time they can have more money with them to help people for the continuity of their activities/business. In this way liquidity can be generated in the market and financial crisis can also be gradually eliminated.