Mortgage Primer 03
A Mortgage Product Primer
Mortgage Strategies Goldman, Sachs & Co. Fall 2004
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Table of Contents
I.
Mortgage Overview
II. Mortgage-Backed Security (MBS) Overview
III. Agency vs. Non-Agency MBS
IV. MBS Collateral
Jumbo (Prime and Hybrid)
Subprime
Alt-A
FHA/VA Reperforming
Scratch and Dent
V. MBS Structures
VI. Commercial Mortgage-Backed Securities (CMBS)
VII. Asset-Backed Securities (ABS)
VIII. Collateralized Debt Obligations (CDOs) / Collateralized Loan Obligations (CLOs)
IX. Constant Maturity Mortgage (CMM)
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I. Mortgage Overview
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What Is a Mortgage?
A mortgage is a contract under which a borrower (the mortgagor) pledges a structure and/or a piece of property as collateral for a loan from a lender (mortgagee). The contract includes a loan amount, an interest rate, a frequency of payments and a loan term.
This contract gives the lender the right to foreclose on the loan and seize the property in the event that the mortgagor fails to make the contractual payments. Such failure is called a default.
Typical mortgage originators (lenders) include commercial banks, thrifts, and mortgage bankers. Originators earn income by charging an origination fee (measured in percentage points, paid by the mortgagor at the closing), application fees and processing fees.
Four types of properties that can be collateral for mortgages: Residential real estate - Single family (one-to-four- family) (houses, mobile homes) - Multi-family (more than four-family) (condominiums, cooperatives (co-ops)) Non-residential real estate - Commercial (office buildings, shopping centers, hospitals, industrial plants) - Farm properties
Mortgage Overview
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The Mortgage Market
At the end of the first quarter of 2004, $9.6 trillion mortgages were outstanding.
The breakdown of these mortgages by property type is as follows:
Multifamily $551bn 6%
Farm $134bn
1%
Commercial $1,557bn 16%
One-to-four-family $7,376bn 77%
Source: Federal Reserve Flow of Funds 1Q2004 report
Mortgage Overview
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