Download presentation
Presentation is loading. Please wait.
Published byMerilyn Johnston Modified over 7 years ago
1
THE SECONDARY MORTGAGE MARKET: PASS THROUGH SECURITIES
CHAPTER NINETEEN THE SECONDARY MORTGAGE MARKET: PASS THROUGH SECURITIES
2
Chapter Objectives Evaluation of secondary mortgage market and FNMA and GNMA Mortgage backed bonds and pass through securities Implications of borrower prepayment
3
Mortgage Markets Primary mortgage market Secondary mortgage market
Lenders and borrowers Secondary mortgage market Conduits, investment bankers and investors Mortgage-backed securities
4
Real Estate Debt and Equity Markets
Private Public Equity Individuals, Pension Funds Equity REITS, Real Estate Corporations Mortgage Debt Banks, Insurance Companies Mortgage-backed Securities, Mortgage REITs
5
Mortgage Markets Primary mortgage market Secondary mortgage market
Lenders and borrowers Secondary mortgage market Federal National Mortgage Assoc. “Fannie Mae” Federal Home Loan Mortgage Corporation “Freddie Mac”
6
Depository Lenders in the Primary Market
Commercial Banks Savings Institutions
7
Nondepository Lenders in the Primary Market
Mortgage bankers Mortgage brokers Others
8
Government-Sponsored Mortgage Programs
FHA-Insured Loans VA-Guaranteed Loans
9
FHA- Insured Loans FHA loans are made by private lenders through various programs (e.g. section203 loans) FHA insurance protects the lender from losses due to default and foreclosure FHA borrowers pay an up front premium, plus a monthly premium for FHA insurance Maximum FHA loan amounts vary depending on an area’s median house price Minimum down payment of three percent
10
VA-Guaranteed Loans VA loans are made by private lenders (available to U.S. Veterans) VA guarantees the lender against loss up to 100% of a property’s value VA charges a funding fee based on the size of the LTVR Maximum VA loan amounts exist No down payment is required and no discount points can be paid by the borrower
11
The Secondary Market Federal National MTG. Assoc., FNMA (Fannie Mac)
Federal Home Loan Mtg. Assoc., FHLMC (Freddie Mac) Government National Mtg. Assoc., GNMA (Ginnie Mae) Life insurance companies and other purchases
12
Fannie Mae, FNMA FNMA was organized in 1938 to purchase FHA loans
FNMA reorganized in 1968 and authorized to purchase conventional mtgs. in 1970 FNMA obtains funds from the sale of its stock, its MBS, by issuing bonds, and from its earnings The MBSs issued by FNMA and the mortgages they own account for 23 percent of the residential mortgage market
13
Freddie Mac, FHLMC FHLMC was created in 1970 to provide a secondary market for S&L associations FHLMC currently buys both government- underwritten and conventional loans Freddie Mac and Fannie Mae are now operationally similar The MBSs issued by Freddie Mac and the mortgages they own represent 16 percent of the residential mortgage market
14
Ginnie Mae, GNMA GNMA was created in 1968
GNMA guarantees the timely payment of principal and interest on MBSs (primarily FHA and VA pools) GNMA also purchases mortgages designed by the FHA for low and moderate- income buyers
15
GNMA Payment Guarantee
GNMA was empowered to guarantee timely payment of PI, on Securities backed by FHA, VA, and FmHA GNMA resulted in an expansion of secondary market Pass-through securities Default risk minimized
16
Operation of Secondary Market
Direct sale programs Mortgage-related security pools
17
Direct Sale Programs Originators Buyers Mortgage companies Thrifts
Commercial Banks others Buyers Life insurance companies Eastern thrifts FNMA FHLMC
18
Mortgage Related Security Pools
MBBs MPTs (pass through) MPTBs (pay through) CMOs
19
Mortgage- Backed Bonds
Fixed coupon rate Specific maturities Issuer retains ownership of mortgages Mortgages pledged as security Over collateralization
20
Mortgage- Backed Bonds Continued
Investment Rating Quality Diversification Rates Prepayment Appraised value DCR
21
Pricing- Calculator Solution
n= semi annual periods I= required rate PV= present value of bond pmt= semi annual interest payment (stated rate) FV= par value Requires 4 variables to solve for yield or PV inverse relationships between interest rates and bond prices
22
Mortgage Pass-Through Securities
Mortgage originations are pooled by lenders or FNMA or FHLMC Originators use a securities underwriter Securities represent an individual interest in pool Large or small investors
23
Characteristics of Mortgage Pools
Security issuers and guarantors Pass through Participation certificates MBS Default insurance PMI- conventional Guarantee- VA Insured- FHA
24
Characteristics of Mortgage Pools Continued
Payment patterns Coupon rates and interest rates Geographic distributions Borrower characteristics Pool size Prepayment considerations All of the above can effect pricing
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.