Chapter 12 - Chapter 12 Sources and Funds for Residential...

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Chapter 12 Sources and Funds for Residential Mortgages 2/26/08 Market for Residential Loans Total residential mortgages $9.2 trillion outstanding The mortgage finance system has a profound impact on real estate values. The increased availability of home loans at lower interest rates has been a key factor in the recent strong housing market. History Lesson In the past 20 years, the mortgage industry has changed dramatically from a local quiet business to a dynamic industry involving Wall Street and global investment community. Depository Lenders- institutions that collected deposits (savings) from many individuals and made loan the funds in local consumer and real estate loans o Historically, this system of lenders provided the primary source of residential loans in the U.S. Savings and Loans From post WW2 through the 1970’s, savings and loans (S & L’s) dominated the home mortgage market Federally insured short term deposits, long term (30 year) fixed rate loans. o Portfolio lenders- kept the loans in-house. In the 1970’s interest rates increased significantly and the S and L’s lost much of their deposits to higher yielding money market accounts. (Disintermediation ). o Disintermediation raged as huge blocks of savings were diverted from thrifts to Wall Street. Deregulation allowed more aggressive and risky loans that led to the $50 billion RTC program, at the time the largest taxpayer bailout ever. Market Share of home loans went from >50% in 1980 under 15% in 2000. Non Depository Lenders in the Primary Market Mortgage Bankers - lend funds for home financing. They are not financial intermediaries, however, because they do not accept deposits. They combine a
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Chapter 12 - Chapter 12 Sources and Funds for Residential...

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