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