1. Copyright © 2000 Addison Wesley Longman Slide #11-1 Chapter Eleven THE MORTGAGE MARKETS

2. Copyright © 2000 Addison Wesley Longman Slide #11-2 What Are Mortgages? A long term loan secured by real estate.

3. Copyright © 2000 Addison Wesley Longman Slide #11-3 Mortgage Loan Borrowers

4. Copyright © 2000 Addison Wesley Longman Slide #11-4 Characteristics of the Residental Mortgage Mortgage Interest Rates Loan Terms Mortgage Loan Amortization

5. Copyright © 2000 Addison Wesley Longman Slide #11-5 Mortgage Interest Rates Market Rates Term Discount Points

6. Copyright © 2000 Addison Wesley Longman Slide #11-6 Mortgage Rates vs. Treasury Bonds

7. Copyright © 2000 Addison Wesley Longman Slide #11-7 Effective Rate of Interest

8. Copyright © 2000 Addison Wesley Longman Slide #11-8 Loan Terms Collateral Down Payments Private Mortgage Insurance Borrower Qualification

9. Copyright © 2000 Addison Wesley Longman Slide #11-9 Distribution of Principal and Interest

10. Copyright © 2000 Addison Wesley Longman Slide #11-10 Present Value Interest Factor at Various Rates of Interest

11. Copyright © 2000 Addison Wesley Longman 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. Copyright © 2000 Addison Wesley Longman Slide #11-12 Major Mortgage -Lending Institutions’ Share of Mortgages

13. Copyright © 2000 Addison Wesley Longman Slide #11-13 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.

14. Copyright © 2000 Addison Wesley Longman Slide #11-14 Mortgage-Backed Security What is it? The different types of Government Agencies Most common type of security Mortgage pass-through

15. Copyright © 2000 Addison Wesley Longman Slide #11-15 Mortgage Pass-Through Definition: A security that has the borrower’s mortgage payments pass through the trustee before being disbursed to the investors.

16. Copyright © 2000 Addison Wesley Longman Slide #11-16 Mortgage Pools

17. Copyright © 2000 Addison Wesley Longman 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.