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Mortgage Markets I. Mortgage Mortgage A pledge of property to secure payment of a debt. Mortgagor: Borrower Mortgagee: Lender Properties Residential Properties Single-Family Structures Multifamily Structures Nonsidential Properties Commercial Farm II. Primary Mortgage Market

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Presentation Transcript
i mortgage
I. Mortgage
  • Mortgage

A pledge of property to secure payment of a debt.

  • Mortgagor: Borrower
  • Mortgagee: Lender
slide3
Properties
    • Residential Properties
      • Single-Family Structures
      • Multifamily Structures
    • Nonsidential Properties
      • Commercial
      • Farm
ii primary mortgage market
II. Primary Mortgage Market
  • Mortgage Origination
    • Mortgage Originators
      • Savings and Loans
      • Savings Banks
      • Commercial Banks
      • Credit Unions
      • Mortgage Banks
      • Life Insurance Companies
      • Pension Funds
slide5
Origination Process
    • Application
    • Criteria
      • Payment-to-Income Ratio (PTI)

The ratio of monthly payment to monthly income.

      • Loan-to-Value Ratio (LTV)

The ratio of the amount of the loan to the market (or appraised) value of the property.

    • Credit Scoring
    • Commitment Letter to the Applicant
slide6
Fees
    • Origination Fee

A point represents 1% of the borrowed funds.

    • Application Fee
slide7
Insurance
    • Conventional Mortgages
    • Insured Mortgages
      • Federal Housing Administration (FHA)
      • Veterans Administration (VA)
      • Rural Housing Service (RHS)
slide8
Claim Priority
    • First Mortgage
    • Second Mortgage
    • Third Mortgage
  • Maturity: 15 to 30 years
slide9
Mortgage Design
    • Fixed-Rate Mortgage (Traditional Mortgage)
    • Adjustable-Rate Mortgage (ARM)

Rates to be reset every month, year, two years, or three years.

    • Balloon-Payment Mortgage (Balloon/Reset Mortgage, Rollover Mortgage)

Rates to be renegotiated every 3 to 5 years.

slide10
Graduated-Payment Mortgage (GPM)

Nominal monthly repayment grows at a constant rate during a portion of the life of the contract, thereafter leveling off.

  • Price-Level-Adjusted Mortgage (PLAM)

Monthly payments to be level in purchasing power terms rather than in nominal terms.

slide11
Growing-Equity Mortgage

The payments never level off but continue to increase throughout the life of the loan.

  • Shared-Appreciation Mortgage
slide12
Risk
    • Determinants
      • Equity Invested (Loan-to-Value Ratio)
      • Borrower’s Income
      • Borrower’s Credit History
slide13
Pipeline Risk

The loan applications being processed and the commitments made by a mortgage originator together are called its pipeline.

Pipeline risk refers to the risks associated with originating mortgages.

slide14
Price Risk

The adverse effects on the value of the pipeline if mortgage rates rise.

  • Fallout Risk

The risk that applicants or those who were issued commitment letters will not close.

iii secondary mortgage market
III. Secondary Mortgage Market
  • Conduits
    • Federally Sponsored Agencies

Federal Home Loan Mortgage Corporation

Federal National Mortgage Association

slide16
Private Institutions

Residential Funding Corporation

GE Capital Mortgage Services

Countrywide

Prudential Home Mortgage

slide17
Underwriting Standards
    • Conforming Mortgage

A mortgage loan that meets the underwriting standards to be included in a pool of mortgages underlying a security that a conduit guarantees.

      • Maximum PTI
      • Maximum LTV
      • Maximum Loan Amount
    • Nonconforming Mortgage
slide18
Servicing
  • Securitization
iv mortgage backed securities
IV. Mortgage-Backed Securities
  • Mortgage-Backed Bonds
    • FNMA
    • Freddie Mac
  • Pass-Throughs: Government guaranteed mortgages
    • GNMA
    • Privately Issued Pass-Throughs (PIPs)
slide20
Participation Certificates (PCs): Conventional mortgages pooled by Freddie Mac
  • Collateralized Mortgage Obligations (CMOs)
slide21
Unit Investment Trust

A passively managed trust with units sold to investors.