UGBA M3L1 - UGBA M3L1 How mortgages are supposed to work...

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UGBA M3L1 How mortgages are supposed to work Mortgages are essential for home ownership Why they are considered safe investments How securitization increased the availability of mortgages Expanding mortgages further Mortgages help people buy houses Definition: Mortgage—a loan secured by real estate. If you don’t pay, you get thrown out and the bank takes the house (repossession) then re-sells the house and pays off the loan Without Mortgages Without mortgages, you have to save and save and save and buy a smaller house when you are in your 50s Why Conventional Mortgages were very safe: “Conforming Loans” Historically, you had to have good credit to buy a house Loan payments could not be more than 28 percent of your income The loan-to-value had to be 80 percent Why 90% made sense “First Time Borrowers”- made sense because people’s income increases as they get older Intro to Securitization of Mortgages Without the “secondary mortgage” market- depositors put money into the bank that the bank loans as a mortgage With the “Secondary Mortgage” Market Sell the mortgage to an investor- now the bank has more money to lend Wells fargo sold loan through securitization- bank services the loan The Mortgage Process Conforming Loans Originator- local bank or mortgage company Bond Money- were they/ weren’t they “government bonds”? Investment banks packaged the loans together as bond holders
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This note was uploaded on 10/03/2011 for the course UGBA 10 taught by Professor Xuanmingsu during the Fall '08 term at University of California, Berkeley.

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UGBA M3L1 - UGBA M3L1 How mortgages are supposed to work...

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