Widen you knowledge of how the mortgage market works
Whether you're looking to broaden your knowledge or just curious about how the mortgage system works, this course is perfect for you. Our instructor begins with the 2007 financial crisis to discuss what happened and why. Then, we'll walk through a mortgage so you can learn about the critical details of the contract. You'll also learn about non-traditional loans and other products designed for those with less than perfect credit. Plus, we'll cover an overview of how mortgages are originated and securitized.
Understanding the Mortgage Market provides a comprehensive look at all aspects of this market, including how it works and how it affects our economy.
Supply and Demand
The supply of capital is finite. Real estate borrowers must compete with the government, businesses, and other consumers for available capital/funds. If mortgage money is in short supply, mortgage interest rates rise. A cause is the placement of potential capital/mortgage money in other markets that are paying higher interest rates. Another cause is when spending authorized by the U. S. Congress exceeds current tax revenues. The Congress and the President accomplish this spending by borrowing in the capital markets and increasing the direct and indirect national debt that reducing available capital for private investment.
Government Intervention Can Redirect Supply
Between late 1989 and the mid-1990s, a "credit crunch" occurred in a portion of the real estate market primarily because the federal government, through re-regulation including capital reserve requirements imposed on depository institutions under Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), redirected available capital to residential mortgage lending. The capital reserves required for residential mortgage loans secured by 1 to 4 dwelling units ranged from 2% to 4%, depending primarily on whether the loan was insured or indemnified by a federal agency. The reserve requirements for commercial properties jumped to as much as 8%.
Accordingly, lenders rushed to make residential mortgage loans and avoided loans secured by commercial properties, including those that are characterized as industrial or as land loans. Residential income properties were treated more favourably with reduced capital reserve requirements, although higher than the reserves required for residential mortgage loans.
The flow of capital to residential mortgages helped cause "refinance mania" beginning in the mid-1990s and continuing through the middle 2000s. The Fed's policy of holding interest rates at historically low levels also contributed to "refinance mania". This flow of money mitigated the "credit crunch" that occurred in the early 1990s.
In addition, home purchase transactions increased substantially during the period from 1999 through most of 2006, increasing the demand for residential mortgage loans.