chapter 24 – mortgage backed
DESCRIPTION
Chapter 24 – Mortgage Backed. Original Mortgage Market Savings and Loan Received Deposits from Saver Loan Saver’s Deposit out to Home-Buyer Saver Received 5% on investment Borrower paid 8% on loan 3% difference was the spread that covered the management fees and profit of the transaction - PowerPoint PPT PresentationTRANSCRIPT
Chapter 24 – Mortgage Backed
Original Mortgage Market Savings and Loan
Received Deposits from Saver Loan Saver’s Deposit out to Home-Buyer Saver Received 5% on investment Borrower paid 8% on loan 3% difference was the spread that covered the
management fees and profit of the transaction
Different Loan Rates Across the Country
Chapter 24 – Mortgage Backed
Government Promotes Fixed Rate Mortgages Government Agencies
Federal Housing Authority (FHA) Originate and underwrite conforming loans
Federal National Mortgage Association (Fannie Mae)
Secondary Market for trading mortgages Trade Insured – standardized mortgages Granted credit line with Treasury for “squeezes” Trouble developing the secondary market
Chapter 24 – Mortgage Backed
Government Agencies Continued Government National Mortgage Association –
Ginnie Mae Created to support the FHA and VA mortgage
markets Full Faith and Credit of the Government
Added Federal Home Loan Mortgage Association – Freddie Mac
Divided up the functions Fannie Mae – Conventional Loans Freddie Mac – Insured FHA and VA Loans
Chapter 24 – Mortgage Backed
Mortgage Pass-Through Securities Loans meet “standards” Loan stamped with GNMA or FNMA or
FHLMA Bundled in a Pool Cash Flows of Pool pledged against Issued
Securities Example of Pass-Through Transaction
Players: Home Buyers, Bank (Service Loan), Government Agency, and Capital Markets
Chapter 24 – Mortgage Backed
Other Players in Mortgage Backed Non Agency Securities
Government “wanted” to privatize the market Needed to strengthen the secondary market Privatize their agencies Tax issues
Other Developments Sequential CMOs – example Stripping CMOs Commercial CMOs