Urban 11-30

Urban 11-30 - Urban Economics Lecture 11-30 Fannie Mae &...

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Lecture 11-30 1- Mortgages 2- Savings and loans 3- FF basics 4- Goals for reform 5- Reforms Mortgages: loans that have big fiscal objects as collateral loans that have houses as collateral there are mortgages on airplanes, boats, etc. Residential mortgages: 5 different dimensions i) recourse or not: what the lender can get when the mortgage goes up, can go after the home owner forever and ever in a non-recourse mortgage the lenders recovery is limited to the collateral i.e. to the house ii) length: how long you have to pay it back iii) payment schedule: during the length of time, how much do you pay, a lot up front? a lot at the end? in the middle? balloon- wait until the last minute pay equal payments along the way iv) pre-payment rules what happens if I want to pay ahead of the schedule? v) down payment Traditional American Mortgage: non-recourse 30/15 years equal payments no pre-payment penalty 10-20% down payment A mortgage is a way of allocating risk incentives that go with the allocation of risk risks: the house might burn down, it may turn out that you don't really own the house (the title is not right), you might lose your job and can't make mortgage payments, you might get sick and have huge medical bills, your house loses value due to a recession or your town's industry leaves or a nuclear waste dump opens next door, interest rates might go up or down, homeowners tax preferences might end not all of these risks are handled by mortgages usually covered by homeowners insurance or fire insurance, etc. but you can't get a mortgage without title insurance or fire insurance, etc.
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This note was uploaded on 02/16/2011 for the course ECON 4228 taught by Professor O'flaherty during the Spring '11 term at Columbia.

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Urban 11-30 - Urban Economics Lecture 11-30 Fannie Mae &...

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