Chapter Eleven
THE MORTGAGE MARKETS
Copyright © 2000 Addison Wesley Longman
Slide #11-1
What Are Mortgages?
A long term loan secured by real estate.
Copyright © 2000 Addison Wesley Longman
Slide #11-2
Mortgage Loan Borrowers
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Slide #11-3
Characteristics of the Residental
Mortgage
Mortgage Interest Rates
Loan Terms
Mortgage Loan Amortization
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Slide #11-4
Mortgage Interest Rates
Market Rates
Term
Discount Points
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Slide #11-5
Mortgage Rates vs. Treasury
Bonds
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Slide #11-6
Effective Rate of Interest
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Slide #11-7
Loan Terms
Collateral
Down Payments
Private Mortgage Insurance
Borrower Qualification
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Slide #11-8
Distribution of Principal and
Interest
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Slide #11-9
Present Value Interest Factor at
Various Rates of Interest
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Slide #11-10
Types of Mortgage Loans
Insured and Conventional Mortgages
Fixed-Rate Mortgages
Adjustable-Rate Mortgages
Other Types
Graduated-Payment Mortgages (GPMs)
Growing Equity Mortgages (GEMs)
Shared-Appreciation Mortgages (SAMs)
Equity Participation Mortgages
Second Mortgages
Reverse Annuity Mortgages (RAMs)
Copyright © 2000 Addison Wesley Longman
Slide #11-11
Major Mortgage-Lending
Institutions’ Share of Mortgages
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Three Distinct Elements to
Mortgage Loans
1. The originator packages the loan for an
investor.
2. The investor holds the loan.
3. The servicing agent handles the
paperwork.
Copyright © 2000 Addison Wesley Longman
Slide #11-13
Mortgage-Backed Security
What is it?
The different types of Government
Agencies
Most common type of security
Mortgage pass-through
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Slide #11-14
Mortgage Pass-Through
Definition: A security that has the
borrower’s mortgage payments pass
through the trustee before being
disbursed to the investors.
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Slide #11-15
Mortgage Pools
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Slide #11-16
Securitized Mortgages
Benefits
1. Reduces the problems caused by
regional lending institution’s sensitivity
to local economic fluctuations.
2. Borrowers have access to a national
capital market.
3. Investors have low-risk and long-term
investments in mortgages without
having to service the loan.
Copyright © 2000 Addison Wesley Longman
Slide #11-17