1. Chapter Eleven THE MORTGAGE MARKETS

2. Chapter Eleven The Mortgage Markets

3. Slide 11–3 What Are Mortgages? A long-term loan secured by real estate

4. Slide 11–4 Mortgage Loan Borrowers

5. Slide 11–5 Characteristics of the Residential Mortgage Mortgage Interest Rates Loan Terms Mortgage Loan Amortization

6. Slide 11–6 Mortgage Interest Rates Market Rates Term Discount Points A variety of fun mortgage calculators http://interest.com/calculators/index.shtml

7. Slide 11–7 Current mortgage interest rates http://www.interest.com/ Mortgage Rates versus Treasury Bonds Figure 11-1: Mortgage Rates and Long-Term Treasury Interest Rates, 1985–2002

8. Slide 11–8 Effective Rate of Interest

9. Slide 11–9 Loan Terms Collateral Down Payments Private Mortgage Insurance Borrower Qualification

10. Slide 11–10 Distribution of Principal and Interest

11. Slide 11–11 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)

12. Slide 11–12 Figure 11-2: Share of the Mortgage Market Held by Major Mortgage-Lending Institutions

13. Slide 11–13 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

14. 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

15. Slide 11–15 Mortgage Pools Figure 11-3: Value of Mortgage Principal Held in Mortgage Pools, 1984–2001

16. Slide 11–16 Mortgage-Backed Securities

17. Slide 11–17 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