tailieunhanh - Lecture Financial markets and institutions (4/e) – Chapter 7

After studying chapter 8, you should be able to: Explain how the definition of “working capital” differs between financial analysts and accountants, understand the two fundamental decision issues in working capital management – and the trade-offs involved in making these decisions, Discuss how to determine the optimal level of current assets,. | Chapter Seven Mortgage Markets 7- Mortgages and Mortgage-Backed Securities Mortgages are loans to individuals or businesses to purchase homes, land, or other real property Many mortgages are securitized mortgages are packaged and sold as assets backing publicly traded or privately held debt instruments (., mortgage-backed securities (MBSs)) Mortgages differ from bonds and stocks mortgages are backed by a specific piece of real property primary mortgages have no set size or denomination primary mortgages generally involve only a single investor comparatively little information exists on mortgage borrowers 7- Primary Mortgage Market Four basic types of mortgages are issued by financial institutions home mortgages are used to purchase one- to four-family dwellings multifamily dwellings mortgages are used to purchase apartment complexes, townhouses, and condominiums commercial mortgages are used to finance the purchase of real estate for business purposes farm mortgages are used to finance the purchase of farms 7- Mortgage Loans Outstanding, 2007 (Trillions of $) 7- Mortgage Characteristics Collateral: lenders place liens against properties that remain in place until loans are fully paid off A down payment is a portion of the purchase price of the property a financial institution requires the borrower to pay up front private mortgage insurance (PMI) is generally required when the loan-to-value ratio is more than 80% Federally insured mortgages repayment is guaranteed by either the Federal Housing Administration (FHA) or the Veterans Administration (VA) 7- Mortgage Characteristics Conventional mortgages are mortgages that are not federally insured Amortized mortgages have fixed principal and interest payments that fully pay off the mortgage by its maturity date fully amortized mortgage maturities are usually either 15 or 30 years Balloon payment mortgages require fixed monthly interest payments for 3 to 5 years whereupon full payment of the . | Chapter Seven Mortgage Markets 7- Mortgages and Mortgage-Backed Securities Mortgages are loans to individuals or businesses to purchase homes, land, or other real property Many mortgages are securitized mortgages are packaged and sold as assets backing publicly traded or privately held debt instruments (., mortgage-backed securities (MBSs)) Mortgages differ from bonds and stocks mortgages are backed by a specific piece of real property primary mortgages have no set size or denomination primary mortgages generally involve only a single investor comparatively little information exists on mortgage borrowers 7- Primary Mortgage Market Four basic types of mortgages are issued by financial institutions home mortgages are used to purchase one- to four-family dwellings multifamily dwellings mortgages are used to purchase apartment complexes, townhouses, and condominiums commercial mortgages are used to finance the purchase of real estate for business purposes farm mortgages are .