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The Development of Mortgage Markets

The Development of Mortgage Markets. 1950’s – A Decade of Stability Maturity Mismatch??? Inflation: Regulation Q: 1960’s – Creeping Inflation, Disintermediation, and the rise of the Secondary Mortgage Market. The Development of Mortgage Markets. The Development of Mortgage Markets.

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The Development of Mortgage Markets

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  1. The Development of Mortgage Markets • 1950’s – A Decade of Stability • Maturity Mismatch??? • Inflation: • Regulation Q: • 1960’s – Creeping Inflation, Disintermediation, and the rise of the Secondary Mortgage Market

  2. The Development of Mortgage Markets

  3. The Development of Mortgage Markets • 1970’s – FRM Problems with Inflation • The “Tilt” Effect • Supply Problems • Continued Growth of the Secondary Market

  4. The “Tilt” Effect

  5. The Development of Mortgage Markets • 1980’s – Deregulation, the Growth of AMI’s, and the Thrift Crisis

  6. The Thrift Crisis • Regulatory Failure: • FSLIC Forbearance • Additions to Net Worth • RAP vs. GAAP Accounting • The “Zombie” Theory

  7. FIRREA to the Rescue??? • Changes Mandated FIRREA • Limitations of FIRREA

  8. Risk-Based Capital Guidelines

  9. Calculating Net Worth for S&L’s • Period 1: 1-year market rate=7%, 30-year market rate=9% • Assets • 30-year mortgages, 9% coupon – BV=$50,000,000 • Building and Land – BV=$5,000,000 • Liabilities • 1-year CDs at 1-year market rate – BV=$50,000,000 • Equity = ? • Period 2: 1-year market rate=8%, 30-year market rate=10% • Assets: • 30-year mortgages, 9% coupon – BV=$50,000,000 • Building and Land – BV=$5,000,000 • Liabilities: • 1-year CDs at 1-year market rate – BV=$50,000,000 • Equity = ?

  10. The Development of Mortgage Markets • 1990’s – Dominance of the Secondary Market • 2000’s – Continued Dominance of the Secondary Market, Development of Sub-prime markets, and the housing crunch

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