Note #6 - I Self-amortization I 30-year mortgages Dual...

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ECON 133 Securities Markets Lecture 6 Jia-Yuh Chen August 7, 2009
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Stock of the Day I I SPDR Dow Jones REIT (RWR) I Tracking Dow Jones Real Estate Investment Trust I One way to bet on the real estate market
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Stock of the Day II I MACROSHS HOUSING UP (UMM) and MACROSHS HOUSING DWN (DMM) I Prof. Robert Shiller of Yale University I Hedging your real estate investment
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Commercial Real Estate I Direct Participation Program (DPP) I I Limited Partnerships (LP) I Accredited investors only : one million $ in wealth or > $200,000 in income I Real Estate Investment Trusts (REITs) I 75% assets in real estate and 75% income from real estate business I 95% of income must be paid out, no retained earnings I Corporate tax-exempt
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Mortgages I Houses as collateral I Loan-to-value (LTV) ratio I The overall trend I Higher LTV ratio I Longer maturity I I The Great Depression changes I Home Owners±Loan Corporation and Federal Housing Administration
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Unformatted text preview: I Self-amortization I 30-year mortgages Dual Inventions I Government Sponsored Enterprises (GSEs) I Federal National Mortgage Corporation (Fannie Mae) I Federal Home Loan Mortgage Corporation (Freddie Mac) I Low funding costs I Buy mortgages from originators to free up capital I Encourage home ownership I Mortgage-Backed Securities (MBS) I Repayment risk makes them hard to price I Bundling and slicing up trenches makes pricing possible I Pass-throughs I Collateralized Mortgage Obligations (CMO) The Real Estate Bubble I Abundant liquidity in the Great Moderation I Careless/fraudulent lending practices I Subprime I NINJA I Next sucker I Corrupted GSEs I Rating agencies Case-Shiller U.S. Home Price Indices Source: Prof. Robert Shiller&s website Real Estate and Risk Sharing I Real estate as a &nancial asset I A national market? I Very few risk-sharing tools I More regulations...
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Note #6 - I Self-amortization I 30-year mortgages Dual...

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