Mortgage Market PDF

THE MORTGAGE MARKET MORTGAGE - a long term loan secured by real estate. Both individuals and businesses obtain mortgage loans to finance real estate purchases. CHARACTERISTICS OF RESIDENTIAL MORTGAGE 1. MORTGAGE INTEREST RATES - one of the most important factors in the decision of a borrowe...

THE MORTGAGE MARKET MORTGAGE - a long term loan secured by real estate. Both individuals and businesses obtain mortgage loans to finance real estate purchases. CHARACTERISTICS OF RESIDENTIAL MORTGAGE 1. MORTGAGE INTEREST RATES - one of the most important factors in the decision of a borrower. 2. LOAN TERMS - mortgage loan contracts contain many legal and financial terms. 3. COLLATERAL - one characteristic common to mortgage loans is the requirement that collateral usually be real estate. 4. DOWNPAYMENT - to obtain a mortgage loan the lender also requires the borrower to make a down payment. 5. PRIVATE MORTGAGE INSURANCE PMI - an insurance policy that guarantees to make up any discrepancy. 6. BORROWER QUALIFICATIONS - the lender will determine whether the borrower qualifies for it. TYPES OF MORTGAGE LOANS 1. CONVENTIONAL MORTGAGES - these originated by banks or other mortgage but not guaranteed 2. INSURED MORTGAGES - these mortgaged originated by banks but are guaranteed 3. FIXED RATE MORTGAGES - the interest rate and monthly payment do not vary. 4. ADJUSTABLE RATE MORTGAGES ARMS - is tied to some market interest rate 5. GRADUATED PAYMENT MORTGAGES GPMS - are useful for home buyers. GROWING EQUITY MORTGAGE (GEMs) - the payment will initially the same SHARED APPRECIATION MORTGAGES (SAMs) - the lender lower the interest rate EQUITY PARTICIPATING MORTGAGE (EPM) - an outside investor share of property SECOND MORTGAGE - is junior to the original loan REVERSE ANNUITY MORTGAGE (RAMs)- advances funds to the owner. MORTGAGE LENDING INSTITUTIONS - institutions that provide mortgage loans MORTGAGE BACKED SECURITY - a security that is collateralized by a pool of mortgage. SECURITIZATION- a process of transforming illiquid financial assets into market capital. DERIVATIVES - are financial tools that derive value from underlying assets like stocks, DERIVATIVES TWO PURPOSES 1. HEDGING - allows companies to protect from unexpected price changes 2. SPECULATION - involves buying and selling w/ hope of making profit TYPICAL EXAMPLES OF DERIVATIVES 1. FUTURE CONTRACTS - an agreement between seller and buyer 2. FORWARD CONTRACTS - calls for delivery on a specific date 3. CALL OPTIONS - gives holder the right either to buy or sell an instrument 4. FOREIGN CURRENCY FUTURES- future contracts for currencies p/change 5. INTEREST RATE SWAPS -contracts to exchange cash flows. INTERNATIONALIZATION OF FINANCIAL MARKETS - Refers to the process by which financial markets and institutions become interconnected. WORLD STOCK MARKETS - refers to various platforms and exchanges around the globe SIZE OF FINANCIAL MARKETS - refers to the overall scale and value of financial trans TWO WAYS IN UNDERSTANDING FINANCIAL MARKETS 1. ANNUAL CAPITAL RAISED - total amount of money that companies collect Example equity issues, debt issues and syndicated loans 2. TOTAL VALUE OF FINANCIAL INSTRUMENTS- represents value all types fs Example stocks, bonds and derivatives CROSS BORDER MEASURE- exchange of financial assets and loans between countries INTERNATIONAL BOND MARKET, EUROBONDS AND EURO CURRENCIES - Crucial in global finance FACTORS AFFECTING THE LONG RUN TRENDS OF INCREASED FINANCIAL MARKET ACTIVITY 1. LOWER INFLATION 2. PENSIONS 3. STOCK AND BOND MARKET PERFORMANCE 4. RISK MANAGEMENT 5. THE INVESTORS CATEGORIES OF INVESTORS 1. INDIVIDUALS- own small proportion of financial assets. 2. INSTITUTIONAL INVESTORS- are responsible for most of the trading in Fm TYPES OF INSTITUTIONAL INVESTORS 1. MUTUAL FUNDS - the fastest growing institutional investor 2. HEDGE FUNDS- can accept investment from only small number of investor 3. INSURANCE COMPANIES- biggest type of institutional investor holding 1/3 4. PENSION FUNDS- collect and manage the retirement savings of workers 5. ALGORITHMIC FUNDS- grown significantly due to advancements in power OTHER INSTITUTIONS 1. BANKS 2. FOUNDATIONS 3. UNIVERSITY ENDOWMENT FUNDS  INTERNATIONAL CREDIT MARKETS. 1. EUROCREDITS - market floating rate bank loans whose rate tied to LIBOR LIBOR means London Interbank Offer Rate 2. EUROBONDS MARKETS - an international bond underwritten by international 3. FOREIGN BOND MARKET- international bond issued in the country currency dominated TYPES OF FIRMS ENGAGED IN INVESTMENT BANKING 1. BULGE BRACKET BANKS - Are the major international investment banking firms. 2. MIDDLE MARKETS BANKS - Occupy the middle ground between smaller regional investment banks and large bulge bracket investment banks. 3. BOUTIQUE BANKS - REGIONAL BOUTIQUE BANKS Smallest of the investment banks both firms size and typical deal size - ELITE BOUTIQUE BANKS Often like regional boutique banks in that they usually do not provide a complete range of investment banking services. AREAS OF BUSINESS 1. BROKERAGE - proprietary trading, acting as a broker 2. CORPORATE ADVISING - bringing companies to market