FIM06C12金融机构.pptx

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1、Chapter 12The Mortgage MarketsCopyright 2009 Pearson Prentice Hall.All rights reserved.12-2Chapter PreviewPart of the American Dream is to own your own home.But the average price of a home is well over$140,000(and quite a bit higher is some areas,like California).For most of us,home ownership would

2、be impossible without borrowing most of the cost of a home.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-3Chapter PreviewIn this chapter,we identify characteristics of typical residential mortgages and the usual term and types of mortgages available.We then review who provides and serv

3、ices the loans,along with the growth in the secondary mortgage market.Topics include:What Are Mortgages?Characteristics of Residential MortgagesTypes of Mortgage LoansMortgage-Lending InstitutionsCopyright 2009 Pearson Prentice Hall.All rights reserved.12-4Chapter Preview(cont.)Loan ServicingSeconda

4、ry Mortgage MarketSecuritization of MortgagesThe Impact of Securitized Mortgages on the Mortgage MarketCopyright 2009 Pearson Prentice Hall.All rights reserved.12-5What Are Mortgages?A long-term loan secured by real estateAn amortized loan whereby a fixed payment pays both principal and interest eac

5、h monthCopyright 2009 Pearson Prentice Hall.All rights reserved.12-6What Are Mortgages?The next slide shows the total amount of mortgage debt outstanding in the U.S.during 2006.It further delineates by type of property.The table shows roughly$13 trillion outstanding.How does this compare to the valu

6、e of all the stock on the NYSE?Copyright 2009 Pearson Prentice Hall.All rights reserved.12-7What Are Mortgages?Mortgage Loan BorrowersCopyright 2009 Pearson Prentice Hall.All rights reserved.12-8What Are Mortgages?HistoryMortgages were used in the 1880s,but massive defaults in the agricultural reces

7、sion of 1890 made long-term mortgages difficult to attain.Until post-WWII,most mortgage loans were short-term balloon loans with maturities of five years or less.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-9What Are Mortgages?HistoryBalloon loans,however,caused problems during the de

8、pression.Typically,the lender renews the loan.But,with so many Americans out of work,lenders could not continue to extend credit.As a part of the depression recovery program,the federal government assisted in creating the standard 30-year mortgage we know today.Copyright 2009 Pearson Prentice Hall.A

9、ll rights reserved.12-10Characteristics of the Residential MortgageMortgages can be roughly classified along the following three dimensions:Mortgage Interest RatesLoan TermsMortgage Loan Amortization Copyright 2009 Pearson Prentice Hall.All rights reserved.12-11A variety of fun mortgage calculatorsh

10、ttp:/ of the Residential Mortgage:Mortgage Interest RatesThe stated rate on a mortgage loan is determined by three rates:Market Rates:general rates on Treasury bondsTerm:longer-term mortgages have higher ratesDiscount Points:a lower rates negotiated for cash upfrontCopyright 2009 Pearson Prentice Ha

11、ll.All rights reserved.12-12A variety of fun mortgage calculatorshttp:/ of the Residential Mortgage:Mortgage Interest RatesThe next slide shows the relationship between mortgage rates and long-term treasury rates.As can be seen,mortgage rates are typically higher than Treasury rates,but the spread(d

12、ifference)between the two varies considerably.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-13Current mortgage interest rateshttp:/ of the Residential Mortgage:Mortgage Interest RatesCopyright 2009 Pearson Prentice Hall.All rights reserved.12-14A variety of fun mortgage calculatorshttp

13、:/ of the Residential Mortgage:Mortgage Interest Rates&PointsA difficult decision when getting a mortgage is whether to pay points(cash)upfront in exchange for a lower interest rate on the mortgage.Suppose you had to choose between a 12%30-year mortgage or an 11.5%mortgage with 2 discount points.Whi

14、ch should you choose?Assume you wished to borrow$100,000.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-15Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsFirst,examine the 12%mortgage.Using a financial calculator,the required payments is:n=360,i=1.0,PV=100,000,

15、Calculate the PMT.PMT=$1,028.61Copyright 2009 Pearson Prentice Hall.All rights reserved.12-16Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsNow,examine the 11.5%mortgage.Using a financial calculator,the required payments is:n=360,i=11.5/12,PV=100,000,Calculate the PMT.PMT=

16、$990.29Copyright 2009 Pearson Prentice Hall.All rights reserved.12-17Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsSo,paying the points will save you$38.32 each month.However,you have to pay$2,000 upfront.You can see that the decision depends on how long you want to live

17、in the house,keeping the same mortgage.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-18Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsIf you only want to live there 12 months,clearly the$2,000 upfront cost is not worth the monthly savings.Lets see how to dete

18、rmine the answer.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-19Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsYou need to determine when the present value of the savings($38.32)equals the$2,000 upfront.Using a financial calculator,this is:i=1,PV=-2,000,PMT=

19、38.32Calculate n.n=74 months,or about 6.2 years.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-20Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsSo,if you think you will stay in the house and not refinance for at least 6.2 years,paying the$2,000 for the lower p

20、ayment is a sound financial decision.Otherwise,you should accept the 12%loan.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-21Characteristics of the Residential Mortgage:Mortgage Interest Rates&PointsThe next table further illustrates this point,showing the effective rate on the 11.5%mo

21、rtgage if the mortgage is paid in full at various points.Note that right around year 6,the effective annual rate on the 11.5%mortgage is about the same as effective annual rate on the 12%mortgage(12.68%).Copyright 2009 Pearson Prentice Hall.All rights reserved.12-22Characteristics of the Residential

22、 Mortgage:Effective Rate of InterestCopyright 2009 Pearson Prentice Hall.All rights reserved.12-23Characteristics of the Residential Mortgage:Loan TermsMortgage loan contracts contain many legal terms that need to be understood.Most protect the lender from financial loss.Collateral:usually the real

23、estate being financeDown payment:a portion of the purchase price paid by the borrowerCopyright 2009 Pearson Prentice Hall.All rights reserved.12-24Characteristics of the Residential Mortgage:Loan TermsMortgage loan contracts contain many legal terms that need to be understood.Most protect the lender

24、 from financial loss.PMI:insurance against default by the borrowerQualifications:includes credit history,employment history,etc.,to determine the borrowers ability to repay the mortgage as specified in the contactCopyright 2009 Pearson Prentice Hall.All rights reserved.12-25Characteristics of the Re

25、sidential Mortgage:Loan TermsLenders will also order a credit report from one of the credit reporting agencies.The score reported is called the FICO.The range is 300 to 850,with 660 to 720 being average.Payment history,debt,and even credit card applications can affect your credit score.Copyright 200

26、9 Pearson Prentice Hall.All rights reserved.12-26Characteristics of the Residential Mortgage:Loan AmortizationMortgage loans are amortized loans.This means that a fixed,level payment will pay interest due plus a portion of the principal each month.It is designed so that the balance on the mortgage w

27、ill be zero when the last payment is made.The next table shows a typical amortization table for a 30-year mortgage at 8.5%.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-27Characteristics of the Residential Mortgage:Loan Amortization ScheduleCopyright 2009 Pearson Prentice Hall.All righ

28、ts reserved.12-28Types of Mortgage LoansInsured vs.Conventional Mortgages:if the down payment is less than 20%,insurance is usually requiredFixed-Rate Mortgages:the interest rate is fixed for the life of the mortgageAdjustable-Rate Mortgages:the interest rate can fluctuate within certain parametersC

29、opyright 2009 Pearson Prentice Hall.All rights reserved.12-29Types of Mortgage LoansOther TypesGraduated-Payment Mortgages(GPMs)Growing Equity Mortgages(GEMs)Shared-Appreciation Mortgages(SAMs)Equity Participation MortgagesSecond MortgagesReverse Annuity Mortgages(RAMs)The following table lists addi

30、tional characteristics on all the loans.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-30Types of Mortgage LoansCopyright 2009 Pearson Prentice Hall.All rights reserved.12-31Mortgage-Lending InstitutionsOriginally,thrift institutions were the primary originator of mortgages in the U.S.a

31、nd,therefore,the primary holder of mortgage loans.As the next figure illustrates,this is not the case anymore.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-32Mortgage-Lending InstitutionsCopyright 2009 Pearson Prentice Hall.All rights reserved.12-33Loan ServicingMost mortgages are imme

32、diately sold to another investor by the originator.This frees cash to originate another loan and generate additional fee income.Still,someone has to collect the monthly payments and keep records.This is knows as loan servicing,and servicers usually keep a portion of the payments received to cover th

33、eir costs.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-34Loan ServicingIn all,there are three distinct elements in mortgage loans:The originator packages the loan for an investorThe investor holds the loanThe servicing agent handles the paperworkCopyright 2009 Pearson Prentice Hall.Al

34、l rights reserved.12-35Secondary Mortgage MarketThe secondary mortgage market was originally established by the federal government after WWII when it created Fannie Mae to buy mortgages from thrifts.The market experienced tremendous growth in the early to mid-1980,and has continued to remain a stron

35、g market in the U.S.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-36Securitization of MortgagesThe securitization of mortgages developed because of problems dealing with single mortgages:risk of either default or prepayment and servicing.Pools of mortgages eliminated part of this probl

36、em through diversification.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-37Securitization of MortgagesThe mortgage-backed security(MBS)was created.Pools including hundreds of mortgages were gathered,and the rights to the cash flows generated by the mortgages were sold as separate secur

37、ities.At first,simple pass-through securities were designed.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-38Securitization of Mortgages:The Mortgage Pass-ThroughDefinition:A security that has the borrowers mortgage payments pass through the trustee before being disbursed to the investo

38、rsThis design did eliminate some risk,but investors still faced prepayment risk.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-39Securitization of Mortgages:CMOsDefinition:A CMO is a structured MBS where investor pools have different rights to different sets of cash flows.This design st

39、ructured the prepayment risk.Some classes had little,while other had a lot.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-40The Impact of Securitization on the Mortgage MarketAs the next figure shows,the value of mortgages held in pools is reaching$6.4 trillion near the end of 2006.The

40、securities compete for funds along with all other bond market participants.Mortgage PoolsCopyright 2009 Pearson Prentice Hall.All rights reserved.12-42The Impact of Securitization on the Mortgage MarketBenefits1.Reduces the problems caused by regional lending institutions sensitivity to local econom

41、ic fluctuations2.Borrowers have access to a national capital market3.Investors have low-risk and long-term investments in mortgages without having to service the loanCopyright 2009 Pearson Prentice Hall.All rights reserved.12-43The Impact of Securitization on the Mortgage MarketHowever,this is not w

42、ithout its costs.Because of securitization,mortgage rates have become more national in nature,and this has lead to increased volatility in mortgage rates.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-44The Subprime Mortgage MarketIn 2000,only 2%of mortgages were subprime.This climbed t

43、o 17%by 2006.The average FICO score was 624 for subprime borrowers.Prime mortgage borrowers were 742.Mortgage products became more complicated,and income requirements for these mortgages became very lax.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-45The Subprime Mortgage MarketSubprim

44、e mortgages have become quite controversial.Although predatory advertising and“bait and switch”tactics were all-too-common,home ownership did increase because of subprime lending.Copyright 2009 Pearson Prentice Hall.All rights reserved.12-46Chapter SummaryWhat Are Mortgages?Loans made for the purcha

45、se on real property,and usually collateralized by the purchased property.Characteristics of Residential Mortgages:includes the length of the mortgage,the terms,and the rate charges for the loanCopyright 2009 Pearson Prentice Hall.All rights reserved.12-47Chapter Summary(cont.)Types of Mortgage Loans

46、:includes conventional,insured,fixed and variable rate,and a variety of other designs.Mortgage-Lending Institutions:the primarily originator and holder of mortgages is no longer thrift institutions as other attempt to generate feesCopyright 2009 Pearson Prentice Hall.All rights reserved.12-48Chapter

47、 Summary(cont.)Loan Servicing:the fees generated by collecting,distributing,and recording paymentsSecondary Mortgage Market:the active market for mortgages after the mortgage has been originatedCopyright 2009 Pearson Prentice Hall.All rights reserved.12-49Chapter Summary(cont.)Securitization of Mort

48、gages:growing in popularity,causing mortgages to complete with both Treasury and corporate debtThe Impact of Securitized Mortgages on the Mortgage Market:although many benefits can be noted,increased rate volatility is also a side-effectAdditional Chapter ArtCopyright 2009 Pearson Prentice Hall.All rights reserved.12-51