Crisis - The Mortgage Crisis AEM 4230 Copyright by Vicki...

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1 AEM 4230 Copyright © by Vicki Bogan The Mortgage Crisis Receiving a Mortgage ± Two primary factors in determining: ± Payment-to-Income (PTI) ratio ± Loan-to-Value (LTV) ratio
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2 Mortgage Standards ± Government agencies establish the underwriting standards ± ± ± Types of Mortgages ± Conforming mortgage ± Nonconforming mortgage
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3 Subprime Market ± Subprime lending refers to the practice of making loans to borrowers who do not qualify for market interest rates due to: ± ± ± ± Adjustable Rate Mortgage (ARM) ± ARM – Mortgage in which the interest rate is periodically adjusted based on an economic index ± Most common indices are: ± ± ± ±
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4 Adjustable Rate Mortgage (ARM) ± Payments made by the borrower change over time with the changing interest rate (alternatively, the term of the loan may change) ± The borrower benefits if the interest rate _____ and loses if interest rate ____ Adjustable Rate Mortgage (ARM) ± No-cap ARMs ± Option ARMs
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5 Mortgage-Backed Security (MBS) ± Coupons are tied to the income from a specified group of assets (collateral) ± When the underlying collateral is a mortgage, securities are known as Mortgage-Backed Securities MBS Guarantees ± Agency MBSs have guarantees ± Fully modified pass-throughs guarantee timely payment of both interest and principal ± Modified pass-throughs guarantee timely payment of interest ± Non-Agency MBSs do not have guarantees
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This note was uploaded on 09/03/2009 for the course AEM 4230 taught by Professor Bogan,v. during the Fall '08 term at Cornell University (Engineering School).

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Crisis - The Mortgage Crisis AEM 4230 Copyright by Vicki...

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