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簡介 The Mortgage Market

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Introduction

• We have already noted real estate is capital intensive• The typical capital structure is dominated by debt• That is a major portion of the funds to purchase a home or

construct an office building etc must be borrowed• The segment of capital markets where these funds are

borrowed is called the mortgage market• This sector of the debt market is by far the largest in the

world

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Outstanding Level of Public & Private Debt 1985 - 2000:Q2* ($ Billions)

Agency U.S.Municipal Treasury(1)Mortgage-Backed(2) Corporate*Fed AgenciesMoney Market(3)Asset-Backed*Total

1985 859.5 1,437.70 372.1 776.5 293.9 847 2.4 4,589.101986 920.4 1,619.00 534.4 959.6 307.4 877 3.3 5,220.801987 1,010.40 1,724.70 672.1 1,074.90 341.4 979.8 5.1 5,808.401988 1,082.30 1,821.30 749.9 1,195.70 381.5 1,108.50 6.8 6,346.001989 1,135.20 1,945.40 876.3 1,292.50 411.8 1,192.30 59.5 6,913.001990 1,184.40 2,195.80 1,024.40 1,350.40 434.7 1,156.80 87 7,433.501991 1,272.20 2,471.60 1,160.50 1,454.70 442.8 1,054.30 128.7 7,984.801992 1,302.80 2,754.10 1,273.50 1,557.00 484 994.2 154.4 8,520.001993 1,377.50 2,989.50 1,349.60 1,674.70 570.7 971.8 178.1 9,111.901994 1,341.70 3,126.00 1,441.90 1,755.60 738.9 1,034.70 205.8 9,644.601995 1,293.50 3,307.20 1,570.40 1,937.50 844.6 1,177.30 291.6 10,422.101996 1,296.00 3,459.70 1,711.20 2,122.20 925.8 1,393.90 388.1 11,296.901997 1,367.50 3,456.80 1,825.80 2,346.30 1,022.60 1,692.80 513.6 12,225.401998 1,464.30 3,355.50 2,018.40 2,666.20 1,296.50 1,978.00 632.6 13,411.501999 1,532.50 3,281.00 2,292.00 3,022.90 1,616.50 2,338.20 746.3 14,829.40

2000:Q 2* 1,540.0 3,070.70 2,339.00 3,145.00 1,690.00 2,508.00 773.6 15,066.30(1) Interest bearing marketable public debt. (2) Includes only GNMA, FNMA, and FHLMC mortgage-backed securities.(3) Includes commercial paper, bankers' acceptances, and large time deposits. Sources: U.S. Department of Treasury Federal Reserve System Federal National Mortgage Association Government National Mortgage Association Federal Home Loan Mortgage Corporation

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債券發行概況統計表 :單位 新台幣億元年季月 中央政府公債 省及院轄市政府公債 公司債 金融債券

發行額 餘額 發行額 餘額 發行額 餘額 發行額 餘額80年 1745 2601 344 874 237 641 578 75781年 2250 4510 253 1003 158 655 300 90382年 2100 6135 273 1087 129 593 578 87083年 1480 7101 0 876 302 702 333 94184年 1250 8051 0 620 438 922 447 97485年 一季 300 7880 0 597 86 967 83 1017 二季 200 7861 100 516 640 1566 127 1096 三季 600 8456 0 513 473 1963 66 1034 四季 1150 9361 100 602 638 2504 90 928 10月 300 8755 0 513 142 1851 30 1030 11月 350 8898 0 510 130 1951 20 1010 12月 500 9361 100 602 366 2504 40 928

86年二季金融 用途 不動產 動產 企業投資 週轉金 Total機構放款餘額 ( )金額 億元 34110.30 6492.39 1983.3 44520.07 87106.06

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Total Mortgage Credit Outstanding in the U.S.

Mortgage Debt Outstanding 1994 - 2000* ($ Millions)

1994 1995 1996 1997 1998 1999 2000*Total Outstanding 4,392,794 4,603,981 4,877,536 5,211,286 5,736,638 6,387,651 6,503,518By Type of Mortgage1 - 4 Family 3,355,485 3,510,319 3,718,723 3,970,848 4,355,376 4,788,204 4,862,061Multifamily 271,748 277,002 289,186 302,517 330,551 373,514 382,602Commercial 682,590 732,100 782,493 847,623 954,205 1,122,968 1,154,354Farm 82,971 84,561 87,134 90,299 96,506 102,965 104,501

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,000

1994

1995

1996

1997

1998

1999

2000*

Total OutstandingBy Type of Mortgage1 - 4 FamilyMultifamilyCommercialFarm

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Mortgage Debt Outstanding 1994 - 2000* ($ Millions)

1994 1995 1996 1997 1998 1999 2000*Total Outstanding 4,392,794 4,603,981 4,877,536 5,211,286 5,736,638 6,387,651 6,503,518By HolderCommercial Banks 1,012,711 1,090,189 1,145,389 1,245,315 1,337,217 1,495,717 1,547,038Savings Institutions 596,191 596,763 628,335 631,826 643,957 668,634 680,745Life Insurance Cos 210,904 213,137 208,162 206,840 213,640 229,333 232,555Federal / Agency 315,580 308,757 295,192 286,167 292,636 320,105 318,240Mortgage Pools / Trusts 1,730,004 1,863,210 2,040,848 2,239,350 2,589,764 2,954,836 3,000,462Individuals/Others 527,404 531,926 559,609 601,788 659,425 719,026 724,478

* First Quarter Preliminary Source: Federal Reserve Bulletin

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Why Study Mortgage Market ?

• Shed light on how traditional method of financing assets by financial intermediaries is rapidly changing

• securitization is the new BIG BROTHER• Demonstrates how financial engineering can redirect cas

h flows to create securities that more closely satisfy the asset/liability needs of investors

• Government agencies provide Credit guarantees for mortgage backed securities

• should government agencies continue to provide guarantee

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Supply of loanable funds• The amount of funds borrowed and lent depends on interest rates.

– As rates rise many spending units save more and spend less– Simultaneously when interest rates rise many spending units demand less

credit– The figure following illustrates the operation of supply and demand for lo

anable funds– The demand schedule is downward sloping, reflecting greater willingness

to borrow at lower rates.– The supply schedule, s1, rise to the right, because people have more to len

d at higher rates– The intersection of the of the two schedules determines the amount of fun

ds lent, f1, and the prevailing interest rate, i1

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Supply and demand for loanable funds

d1

s2

s1

f1 f2

i1i2

Amount of loanable funds

Interestrate

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Real Estate Financial Instrument

• When ever real estate is financed, the property is pledged as collateral or security creating a financial instrument known either as MORTGAGE or DEED OF TRUST Power of secured debt: attempting to buy a $300 suit on credit versus obtaining $200,000 loan to build a house

– Mortgage : Two Parties– Deed of Trust : Three Parties– Promissory Note– Title Pledge

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Note + Pledge

Funds

Pledge and lien are extinguished with performance of mortgage contract

MORTGAGE

Borrower(Mortgagor)

Lender(Mortgagee)

A bilateral financial contract

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Note

Funds

pledgeof title

Titlegoesto borrowif nodefault

if defaultpropertyis soldand proceedsgoes tolender

DEED OF TRUST

Borrower(Trustor)

Lender(Beneficiary)

Trustee

A three-party financial contract

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Important Contractual Provisions in Real Estate Financial Instruments

• Parties to the contract• Loan amount• Term of loan• Interest rate• Amortization period• Property description• Priority of loan• Acceleration clause, once default• Escalation clause, once selling house• Prepayment clause

• callable mortgage• non-callable mortgage

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Important Contractual Provisions in real estate financial instrument

• Due-on-Sale Clause• Default Clause (put option)• Personal Liability Clause• Deficiency Judgment• Foreclosure• Redemption Rights

– Equitable right – Statutory right

• Escrow Provisions

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Loan Termination• Termination by satisfying contract

• ending lien against pledged property• trustee provides deed of release• defeasance clause

• Termination by mutual agreement• Refinance• Recasting

• Termination by foreclosure

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Redemption Rights

date ofdefault

Foreclosuresuite filed

Foreclosuresale

End ofStatutory period

Equitable Right of Redemption Period

Statutory Right of Redemption Period

FORECLOSURE PROCESS

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Alternative mortgage contracts• Fixed Rate Mortgage (FRM)• Adjustable Rate Mortgage (ARM)• Graduated Payment Mortgage (GPM) • Shared Appreciation Mortgage (SAM)• Reverse Annuity Mortgage (RAM)• Growing Equity Mortgage (GEM)• Balloon Mortgage

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Other Mortgages

• Junior Mortgage• Purchase Money Mortgage • Land Contract • Wraparound Mortgage

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Types of mortgage amortization • Interest only mortgage (bullet loans)• Partially amortizing or balloon mortgage• Fully amortizing

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Risks faced by mortgage finance intermediaries

• Credit risk:• risk that money borrowed might not returned timely

• Default risk:• risk that money lent might not be repaid

• Cash flow risk:• risk that market conditions will alter scheduled cash flows

– prepayment risk– inflation risk– exchange risk– interest rate risk

• Liquidity risk:• risk that money will be needed before it is due