1. REAL ESTATE FINANCE Theory and Practice 6 th Edition Terrence M. Clauretie G. Stacy Sirmans

2. Chapter 1 Overview of Real Estate Finance

3. Chapter 1 Learning Objectives n Understand the relationship between finance and real estate n Understand how financial markets work n Learn which major financial institutions direct the flow of funds

4. What is Finance? n The study of the process, institutions, markets, and instruments used to transfer money and credit between individuals, businesses, and governments n The focus is on n maximizing value n time value of money n cash flow

5. What is Real Estate Finance? n The study of –The effect of financing on the value of real property –The valuation of mortgages –The financing of residential and commercial real estate –The changes in tax laws affecting real estate financing –The primary and secondary mortgage markets –The securitization of mortgages

6. The Environment of Real Estate Finance n Institutions create financial instruments to transfer money and credit related to real property transactions n Financial institutions channel funds from surplus income units to deficit income units

7. Financial Intermediaries n Commercial Banks n Thrift Institutions n Insurance Companies n Pension Funds n Investment Companies

8. Primary Mortgage Market n The market where mortgages are originated n Originators either hold mortgages in portfolio or sell them into the secondary mortgage market

9. Secondary Mortgage Market n Purchases mortgages from originators in the primary mortgage market n Issues mortgage-related securities using mortgage pools as collateral n Major secondary market participants are Fannie Mae, Freddie Mac, and Ginnie Mae