1. Chapter Eleven THE MORTGAGE MARKETS

2. Chapter Eleven The Mortgage Markets

3. Copyright © 2004 Pearson Education Canada Inc. Slide 11–3 What Are Mortgages? A long-term loan secured by real estate

4. Copyright © 2004 Pearson Education Canada Inc. Slide 11–4 Characteristics of the Residential Mortgage Mortgage Interest Rates Loan Terms Mortgage Loan Amortization

5. Copyright © 2004 Pearson Education Canada Inc. Slide 11–5 Mortgage Interest Rates Market Rates Term Discount Points A variety of fun mortgage calculators http://interest.com/calculators/index.shtml

6. Copyright © 2004 Pearson Education Canada Inc. Slide 11–6 Current mortgage interest rates http://www.canadamortgage.com Mortgage Rates versus Canada Bonds

7. Copyright © 2004 Pearson Education Canada Inc. Slide 11–7 Loan Terms Collateral Down Payments Mortgage Default Insurance Borrower Qualification

8. Copyright © 2004 Pearson Education Canada Inc. Slide 11–8 Distribution of Principal and Interest

9. Copyright © 2004 Pearson Education Canada Inc. Slide 11–9 Types of Mortgage Loans Insured and Conventional Mortgages Fixed- and Variable-Rate Mortgages Other Types –Open and Closed –Second Mortgages –Reverse Mortgages –Graduated-Payment Mortgages (GPMs) –Growing Equity Mortgages (GEMs) –Shared-Appreciation Mortgages (SAMs) –Equity Participation Mortgages

10. Copyright © 2004 Pearson Education Canada Inc. Slide 11–10 Share of the Mortgage Market Held by Major Mortgage-Lending Institutions

11. Copyright © 2004 Pearson Education Canada Inc. Slide 11–11 Three Distinct Elements to Mortgage Loans The originator packages the loan for an investor The investor holds the loan The servicing agent handles the paperwork

12. Copyright © 2004 Pearson Education Canada Inc. Slide 11–12 Mortgage Pass-Through Definition: A security that has the borrower’s mortgage payments pass through the trustee before being disbursed to the investors

13. Copyright © 2004 Pearson Education Canada Inc. Slide 11–13 Mortgage Pools

14. Copyright © 2004 Pearson Education Canada Inc. Slide 11–14 Mortgage-Backed Securities

15. Copyright © 2004 Pearson Education Canada Inc. Slide 11–15 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