Chapter 24 Mortgage Backed

1
Chapter 24 Mortgage Backed

• Original Mortgage Market
• Savings and Loan
• Received Deposits from Saver
• Loan Savers Deposit out to Home-Buyer
• Saver Received 5 on investment
• Borrower paid 8 on loan
• 3 difference was the spread that covered the
  management fees and profit of the transaction
  
• Different Loan Rates Across the Country

2
Chapter 24 Mortgage Backed

• Government Promotes Fixed Rate Mortgages
• Government Agencies
• Federal Housing Authority (FHA)
• Originate and underwrite conforming loans
• Federal National Mortgage Association (Fannie
  Mae)
  
• Secondary Market for trading mortgages
• Trade Insured standardized mortgages
• Granted credit line with Treasury for squeezes
• Trouble developing the secondary market

3
Chapter 24 Mortgage Backed

• Government Agencies Continued
• Government National Mortgage Association Ginnie
  Mae
  
• Created to support the FHA and VA mortgage
  markets
  
• Full Faith and Credit of the Government
• Added Federal Home Loan Mortgage Association
  Freddie Mac
  
• Divided up the functions
• Fannie Mae Conventional Loans
• Freddie Mac Insured FHA and VA Loans

4
Chapter 24 Mortgage Backed

• Mortgage Pass-Through Securities
• Loans meet standards
• Loan stamped with GNMA or FNMA or FHLMA
• Bundled in a Pool
• Cash Flows of Pool pledged against Issued
  Securities
  
• Example of Pass-Through Transaction
• Players Home Buyers, Bank (Service Loan),
  Government Agency, and Capital Markets

5
Chapter 24 Mortgage Backed

• Other Players in Mortgage Backed
• Non Agency Securities
• Government wanted to privatize the market
• Needed to strengthen the secondary market
• Privatize their agencies
• Tax issues
• Other Developments
• Sequential CMOs example
• Stripping CMOs
• Commercial CMOs