How Do American Mortgages Work? Part 7: Securities Dealers

After a mortgage backed security (MBS) is formed, it needs to be sold to the investor. To do that, the MBS needs to go through a securities dealer. This dealer is more than likely located on Wall Street along with MBS trading desks. To better cater to the investor, a securities dealer has to go through creative and innovative channels to make the MBS look attractive to an investor. There is many different structures a MBS can go through such as Collateralized Mortgage Obligation or a Collateralized Debt Obligation.

Collateralized Mortgage Obligation (CMO) are the typical bundle of mortgages that is sold as an investment that was first issued in 1983. They are categorized from maturity and level of risk, and as the repayments of the loan comes in as a cash flow they are distributed to the investors in the set guidelines of the investment. These investments, since of the differences of the mortgages included within type or risk, interest rates, and principal balances, they can be quite sensitive to the change in the housing economic conditions and interest …

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How Do American Mortgages Work? Part 6: The Federal Agencies

Since the housing market is so massive in the United States the government had to be regulating the market in some way. With some agencies created in the midst of the Great Depression and some after the housing bubble burst. These three primary agencies are there to help the consumer and the lender whether it’s regulating the market or insuring less risk onto the lenders, they are there to provide an efficient mortgage market in America.

After the housing bubble burst, the United States government wanted to make sure nothing of this severity ever happened again. President Obama and the Congress signed in the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 that created the Consumer Financial Protection Bureau (CFPB). The goal of the organisation is to watch out for American consumers in the market for consumer financial products and services. Since this agency was only focused on the consumer rather than on monetary policy or bank safety, it puts all the agencies focus on protecting the consumer from unfair processes and illegal activity from products and …

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How Do American Mortgages Work? Part 5: Fannie Mae and Freddie Mac

The main goal of Fannie Mae and Freddie Mac is to give the national mortgage market some liquidity. They purchase the loans from the mortgage firms (only under strict standards with size, credit score, and underwriting). For the next step, they package up the loans into Mortgage-backed securities, which they guarantee the payments on the securities to the investors even if a mortgage defaults.

These standards led to a more reliable ad sustainable mortgage products with longer terms and fixed-rate mortgages. On top of that investors knew that even if a mortgage defaults in their invested security, Fannie and Freddie will supplement the payments to them. Which made mortgage securities seem like a safe and sustainable investment.

Fannie Mae was created in 1938 in part of the New Deal Legislation to help with the housing crisis during the Great Depression. The goal was to buy all the FHA-insured loans to help recover the lenders’ money supply. It was originally apart of the Federal Housing Administration (FHA).

Freddie Mac was established in 1970 to keep the supply of money moving for …

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How Do American Mortgages Work? Part 4: Aggregator

The next step into the Secondary Mortgage Market process in the aggregator. The aggregator buys the mortgages from banks and other originators. It then packages them up as mortgage-backed securities and sells it to securities dealers.

These mortgage-backed securities are investment opportunities that are bundled up mortgages. The aggregators send them off to a rating agency to be rated on their risk of money loss. They securitise the mortgages to either form a private label mortgage-backed security (think of Wall Street) or form agency mortgage-backed security (think of Fannie Mae and Freddie Mac). They then sell it to large institutional investors, insurance companies, hedge funds, and wealthy clients.

This is a complicated process because they have to make sure they receive a profit so before a security is sold a process called hedging a mortgage pipeline is involved. They make profit by the gap between the sales tag on the mortgages they obtain and the price the mortgage-backed securities sell for.

http://budgeting.thenest.com/definition-mortgage-aggregator-34152.html

http://www.investopedia.com/articles/pf/07/secondary_mortgage.asp

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Could Monetary Policy be affecting the Mortgage Default Rate?

With reference to How does monetary policy pass-through affect mortgage default? Evidence from the Irish mortgage market by David Byrne, Robert Kelly, and Conor O’Toole. 04/RT/2017

With the loosening structure of the monetary policy by central banks after the global financial crisis, which allowed the mortgage interest rates to be lower which could have led to a lower default rate on mortgages. This post will focus on two different types of mortgages the Standard Variable Rate mortgage (most commonly known as SVR) and the Tracker mortgage.

A SVR is a mortgage where the lender has the ability to decide when and if the interest rate on the loan will change while a Tracker mortgage is where the interest rate is set to a certain percentage above the European Central Bank interest rate. As the number of Tracker mortgages were increasing while the European Central Bank interest rate was decreasing, the banks started to lose money on them as the interest rate on the mortgage payments were not high enough to cover the cost of the loan. …

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The housing market in Iran

This is a guest blog post covering some topics on Iranian housing, it was contributed by MNA.

House Prices: The norm in Iran for valuing any real estate is by location and meterage of that location so for any individual trying to see what the market is for buying or renting, all you need is to look at any particular area and there are plenty of ways of cross checking and seeing if the price is right.

Looking at pricing via advertisements helps, as does speaking with the local estate agents who will tell you  the going rate before you start your search so that you would have a good idea of what you can afford and where you can live.

The Local currency is very volatile and everyone is worried of that, but in reality all the trading is conducted with USD or Euro so no matter what happens, when you are trying to price an item it is always reflected on the FX rate, as all expensive ticket items would have an important role in the economy. http://www.xe.com/currencyconverter/convert/?From=IRR&To=EUR …

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Today FM, Irish Mortgage Brokers feature on ‘The Last Word’ with Matt Cooper

We were pleased to be part of a discussion with Matt Cooper (Today FM) and Kevin Doyle (political editor at The Independent) on the topic of housing on The Last Word.

The analysis we provided was to make the point that help to buy cannot possibly be behind house price increases across the nation. We also made the point that prices would have risen even without it and that you need to look at the secular trend not just the short term ones.

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Generation Rent? Try generation Broke

It bothers me when people promote long-term renting as a better choice than home ownership because it belies some basic facts.

When I was studying accounting, I was taught to be accurate. When I was learning about financial advice, I was taught to be prudent. Yet both of these concerns are often cast aside when debating the benefits of buying versus renting.

Nationally we are at an important juncture. It’s acknowledged that huge numbers of people won’t be able to afford to buy a home. If this proves to be true, many will also be locked out of one of life’s most wealth-creating activities.

The first problem is the nature of the comparison. If rent is €1,300 a month and a mortgage costs €1,500, then it’s cheaper to rent, right? Well . . . no it isn’t. The outlay is less, but the actual cost of the provision of occupancy is the rent versus the interest portion of the mortgage, not the entire payment. I will explain that point.

People often say rent is dead money. To be fair, so …

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First time buyers who don’t buy new homes

First time buyers have been asking ‘what about those of us who are not buying a new home? Why don’t we get any help like the people using help to buy?’. The answer is that you do, at least for the remainder of 2017.

There is still a DIRT relief for first time buyers scheme in action, it started in 2014 and is ongoing until the 31st of December.

The scheme doesn’t help you get a deposit, rather it’s a refund after you buy, see the notes below taken from the Revenue.ie website:

Section 266A of the Taxes Consolidation Act 1997 provides for refunds of Deposit Interest Retention Tax (DIRT) for first-time buyers who purchase a house or apartment to live in as their home. It also applies to first time buyers who self-build a home to live in.

Who can claim it?

A first-time buyer of a house or apartment who purchases or self-builds a property between 14 October 2014 and 31 December 2017 may be entitled to claim a refund of DIRT.

The first-time buyer must not have …

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