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Chapter 22 – Residential Mortgage Market
BA 543 Financial Markets and Institutions
Chapter 22 – Mortgage Market
Property Backed Loans Residential Loans Commercial Loans
Process Originators
Origination Fee – Points Servicing Fee
PTI – Payment to Income LTV- Loan to Value
Chapter 22 – Mortgage Market
Commitment Letter Offered by Originator Borrower has options
Lock in date of interest rate At Loan Application At Letter Acceptance At Closing
Pays a fee to Originator for Option
Conforming vs. Non-Conforming Loans Federal Sponsored Agency Requirements
Chapter 22 – Mortgage Market
Mortgage Designs Traditional – Fixed Rate and Equal Payments
for Life of Loan Amortized Fully Paid at the End No Prepayment Penalty
Adjustable Rate Mortgages (ARMs) Balloon Resets (Promised Funds with varying
Rates over Life of Mortgage) Graduated Payment, Price-Level, & Duals
Chapter 22 – Mortgage Market
Non-Conforming Loans Alt-A
Borrower can not meet qualifying standard Example, self employed and short on PTI
Subprime Loans History of bad credit Recent “catastrophic” event (medical)
Commercial Loans Based on income from the property not from the
individual Prepayment Protection
Chapter 22 – Mortgage Market
Example of a Traditional Loan Process, Rates, Payments Prepayments
Moving, Refinancing Foreclosure
Missed Payments Insurance (PMI)
Amortization Schedule Interest paid in arrears EXCEL SPREADSHEET - CALCULATOR
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