M12_MISH1438_06_IM_C12

M12_MISH1438_06_IM_C12 - Chapter 12 The Mortgage Markets...

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Chapter 12 The Mortgage Markets What are Mortgages? Characteristics of the Residential Mortgage Mortgage Interest Rates Application : The Discount Point Decision Loan Terms Mortgage Loan Amortization Application : Computing the Payment on Mortgage Loans Types of Mortgage Loans Insured and Conventional Mortgages Fixed- and Adjustable-Rate Mortgages Other Types of Mortgages Mortgage-Lending Institutions Loan Servicing Secondary Mortgage Market Securitization of Mortgages What is a Mortgage-Backed Security? Case: Are Fannie Mae and Freddie Mac Getting too Big for their Britches? Types of Pass-through Securities Mortgage-Backed Security Clearing Corporation The Impact of Securitized Mortgages in the Mortgage Market Subprime Mortgages Overview and Teaching Tips This chapter deals with a subject that will affect all of us eventually, mortgages. A mortgage is a long-term loan secured by real estate. Individuals are usually the primary borrowers who use mortgages to finance their homes or small businesses. The characteristics of residential mortgages are covered in depth so students will get a full understanding of the topic at hand. A detailed section covers interest rates on mortgages and how they are determined for different types of rates, terms, and discount points. There is an excellent application in this section to review discount points with the students. One requirement for most mortgages is collateral, which is usually a piece of real property pledged to the lender for security on the loan. In addition, the borrower is required to make a down payment that is determined by the type of mortgage loan. Computing the payment of mortgage loans is explained in the next section along with an application.
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64 Mishkin/Eakins • Financial Markets and Institutions, Sixth Edition Mortgage loans are available in several different types, including insured and conventional mortgages, fixed- and adjustable-rate mortgages, growing equity mortgages, and second mortgages. Since many institutions do not want to back mortgage loans, the creation of the mortgage-backed security was established. The government created two more institutions to offer new securities backed by both insured and uninsured mortgages. Mortgage pass-throughs are the most common type of these mortgages. GNMA pass-through securities, FHLMC pass-throughs, and private pass-through securities are three types of mortgage pass-through securities which exist. Over the years, mortgage-backed securities have created several benefits for borrowers and lenders. The securitization of mortgages has also created problems. By putting the investor one more layer removed from the borrower abuses have occurred in the industry where loans have been made to borrowers who can’t afford the payments. This practice led to mortgage industry problems beginning in 2006. The category of loans are referred to as sub prime loans.
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Chapter 12 The Mortgage Markets 65 Answers to End-of-Chapter Questions 1. Securities in the mortgage markets are collateralized by real estate. 2.
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M12_MISH1438_06_IM_C12 - Chapter 12 The Mortgage Markets...

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