Chapter Eleven

THE MORTGAGE MARKETS

Chapter Eleven

The Mortgage Markets

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What Are Mortgages?

• A long-term loan secured by real estate

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Characteristics of the Residential Mortgage

• Mortgage Interest Rates

• Loan Terms

• Mortgage Loan Amortization

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Mortgage Interest Rates

• Market Rates

• Term

• Discount Points

A variety of fun mortgage calculatorshttp://interest.com/calculators/index.shtml

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Current mortgage interest rateshttp://www.canadamortgage.com

Mortgage Rates versus Canada Bonds

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Loan Terms

• Collateral

• Down Payments

• Mortgage Default Insurance

• Borrower Qualification

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Distribution of Principal and Interest

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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

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Share of the Mortgage Market Held by Major Mortgage-Lending Institutions

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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

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Mortgage Pass-Through

• Definition: A security that has the borrower’s

mortgage payments pass through the trustee

before being disbursed to the investors

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Mortgage Pools

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Mortgage-Backed Securities

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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