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10-1
Chapter 10
Residential
Mortgage Loans
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Inc. Publishing as Prentice Hall
10-2
Learning Objectives
After reading this chapter, you will understand
what a mortgage is
who the major originators of residential mortgages are
the borrower and property characteristics considered by a
lender in evaluating the credit risk of an applicant for a
mortgage loan
what the servicing of a residential mortgage loan involves
the types of residential mortgage loans based on lien
status, credit classification, interest-rate type, amortization
type, credit guarantees, loan balances, and prepayments and
prepayment penalties
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10-3
Learning Objectives (continued)
After reading this chapter, you will understand
what a prepayment is
the cash flow of a mortgage loan
what a prepayment penalty mortgage is
what a home equity loan is
the risks associated with investing in mortgages
the significance of prepayment risk
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10-4
Origination of Residential
Mortgage Loans
The original lender is called the mortgage
originator. 抵押贷款发放人
The principal originators of residential mortgage
loans are thrifts （储蓄机构）, commercial
banks, and mortgage bankers （贷款抵押银行）.
Mortgage originators may service the mortgages
they originate, for which they obtain a servicing
fee.
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10-5
Origination of Residential
Mortgage Loans (continued)
When a mortgage originator intends to sell the mortgage,
it will obtain a commitment from the potential investor
(buyer).
Two government-sponsored enterprises (GSEs) and
several private companies buy mortgages.
Because these entities pool these mortgages and sell them
to investors, they are called conduits （导管企业）.
When a mortgage is used as collateral for the issuance of a
security, the mortgage is said to be securitized （抵押贷
款证券化）.
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10-6
Underwriting Standards 承销标准
Payment-to-Income Ratio 还款额与收入之
比
The payment-to-income ratio (PTI) is the ratio of
monthly payments to monthly income, which
measures the ability of the applicant to make monthly
payments (both mortgage and real estate tax
payments).
The lower the PTI, the greater the likelihood that the
applicant will be able to meet the required monthly
mortgage payments.
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10-7
Underwriting Standards(continued)
Loan-to-Value Ratio 贷款额与抵押品价
值之比
The loan-to-value ratio (LTV) is the ratio of the amount of the
loan to the market (or appraised) value of the property.
The lower this ratio is, the greater the protection for the lender
if the applicant defaults on the payments and the lender must
repossess and sell the property.
The LTV has been found in numerous studies to be the single
most important determinant of the likelihood of default.
The rationale is straightforward: Homeowners with large
amounts of equity in their properties are unlikely to default.
这是良好的违约预测指标！
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10-8
Types of Residential Mortgage Loans
There are different types of residential mortgage loans.
They can be classified according to the following
attributes:
i. lien status 留置地位
ii. credit classification 信用类别
iii. interest rate type 利率类型
iv. amortization type 分期还款类型
v. credit guarantees 信用担保
vi. loan balances 贷款余额
vii. prepayments and prepayment penalties
提前还款好提前还款罚款
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10-9
Types of Residential Mortgage Loans
(continued)
Lien Status 留置地位
The lien status of a mortgage loan indicates the loan’s
seniority in the event of the forced liquidation of the
property due to default by the obligor.
For a mortgage loan that is a first lien, the lender would have
first call on the proceeds of the liquidation of the property if it
were to be repossessed.
A mortgage loan could also be a second lien or junior lien, and
the claims of the lender on the proceeds in the case of
liquidation come after the holders of the first lien are paid in
full.
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10-10
Types of Residential Mortgage Loans
(continued)
Credit Classification 信用类型
A loan that is originated where the borrower is viewed to
have a high credit quality is classified as a prime loan.
A loan that is originated where the borrower is of lower
credit quality or where the loan is not a first lien on the
property is classified as a subprime loan. 次贷！
While the credit scores have different underlying
methodologies, the scores generically are referred to as
“FICO scores.”
FICO scores range from 350 to 850.
The higher the FICO score is, the lower the credit risk.
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10-11
Types of Residential Mortgage Loans
(continued)
Credit Classification
In refinancing, when the loan amount requested exceeds
the original loan amount, the transaction is referred to as
a cash-out-refinancing. 套现再融资
If instead, there is financing where the loan balance
remains unchanged, the transaction is said to be a rate-
and-term refinancing or no-cash refinancing. 利率与期
限再融资或非套现再融资
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10-12
Types of Residential Mortgage Loans
(continued)
Credit Classification 信用分类
The front ratio （前端比率） is computed by dividing the total
monthly payments (which include interest and principal on the
loan plus property taxes and homeowner insurance) by the
applicant’s pre-tax monthly income.
The back ratio （后端比率） is computed in a similar manner.
The modification is that it adds other debt payments such as auto
loan and credit card payments to the total payments.
The credit score is the primary attribute used to characterize loans
as either prime or subprime.
Prime (or A-grade) loans generally have FICO scores of 660 or
higher, front and back ratios with the above-noted maximum of
28% and 36%, and LTVs less than 95%.
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10-13
Types of Residential Mortgage Loans
(continued)
Interest Rate Type 利率类型
The interest rate that the borrower agrees to
pay, referred to as the note rate （票面利率）,
can be fixed or change over the life of the loan.
For a fixed-rate mortgage (FRM) 固定利率,
the interest rate is set at the closing of the loan
and remains unchanged over the life of the
loan.
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10-14
Types of Residential Mortgage Loans
(continued)
Interest Rate Type
For an adjustable-rate mortgage (ARM) 可调整利率, as
the name implies, the note rate changes over the life of
the loan.
The note rate is based on both the movement of an
underlying rate, called the index or reference rate, and a
spread over the index called the margin.
Two categories of reference rates have been used in
ARMs:
i. market-determined rates
ii. calculated rates based on the cost of funds for thrifts
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10-15
Types of Residential Mortgage Loans
(continued)
Interest Rate Type
The basic ARM is one that resets periodically and has no other
terms that affect the monthly mortgage payment.
Typically, the mortgage rate is affected by other terms that
include:
i. periodic rate caps 期间利率上限
ii. lifetime rate cap and floor 存续期利率上限和下限
A periodic rate cap limits the amount that the interest rate may
increase or decrease at the reset date.
Most ARMs have an upper limit on the mortgage rate that can be
charged over the life of the loan.
This lifetime rate cap is expressed in terms of the initial rate.
ARMs may also have a lower limit (floor) on the interest rate that
can be charged over the life of the loan.
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10-16
Types of Residential Mortgage Loans
(continued)
Amortization Type 分期还款类型
The amount of the monthly loan payment that
represents the repayment of the principal borrowed is
called the amortization.
Traditionally, both FRMs and ARMs are fully
amortizing loans.
What this means is that the monthly mortgage payments
made by the borrower are such that they not only provide
the lender with the contractual interest but also are
sufficient to completely repay the amount borrowed when
the last monthly mortgage payment is made.
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10-17
Types of Residential Mortgage Loans
(continued)
Amortization Type
Fully amortizing fixed-rate loans have a payment that is constant
over the life of the loan.
For example, suppose a loan has an original balance of $200,000,
a note rate of %, and a term of 30 years.
Then the monthly mortgage payment would be $1,.
The formula for calculating the monthly mortgage payment is
where MP = monthly mortgage payment ($), MB0 = original mortgage
balance ($), i = note rate divided by 12 (in decimal), and n = number
of months of the mortgage loan.
这是等额本息还款，如何推导？
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10-18
Loan Amortization Schedule
• It shows how a loan is paid off over time.
• It breaks down each payment into the
interest component and the principal
component.
• Let’s illustrate this using Rob’s 4-year
$10,000 loan which calls for annual
payments of $3,. Recall that the
interest rate on this loan is 14% per year.
Loan Amortization Schedule
=$3, − $1,400
=10,000×
Period: 1
Principal @ Start
of Period
Interest for Period
Balance
Payment
Principal @ End
of Period
Principal Repaid
$10,
$1,
$11,
$3,
$7,
$2,
Loan Amortization Schedule
=7,×
= $3, − $1,
Period: 1 2
Principal @ Start
of Period
Interest for Period
Balance
Payment
Principal @ End
of Period
Principal Repaid
$10,
$1,
$11,
$3,
$7,
$2,
$7,
$1,
$9,
$3,
$5,
$2,
Loan Amortization Schedule
=10,000 (本金）
P232的表展示了30年的
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10-23
讨论：等额本息和等额本金谁还的利息少呢？你认为那个更划算
（更占便宜？）
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10-24
Types of Residential Mortgage Loans
(continued)
Amortization Type
To calculate the remaining mortgage balance at the end
of any month, the following formula is used:
where MBt = mortgage balance after t months, MB0 = original
mortgage balance ($), i = note rate divided by 12 (in
decimal), and n = number of months of the mortgage loan.
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10-25
Types of Residential Mortgage Loans
(continued)
Amortization Type
To calculate the portion of the monthly mortgage
payment that is the scheduled principal payment for a
month, the following formula is used:
where SPt = scheduled principal repayment for month t, MB0 =
original mortgage balance ($), i = note rate divided by 12
(in decimal), and n = number of months of the mortgage
loan.
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10-26
Types of Residential Mortgage Loans
(continued)
Amortization Type
EXAMPLE. Suppose that for month 12 (t = 12), we have
MB0 = $200,000; i = ; n = 360, then the
scheduled principal repayment for month 12 is:
SPt 计算的是在第t个月偿还的本金！
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Types of Residential Mortgage Loans
(continued)
Amortization Type
For an ARM, the monthly mortgage payment adjusts
periodically.
Thus, the monthly mortgage payments must be recalculated at each
reset date.
This process of resetting the mortgage loan payment is referred to as
recasting the loan. 对于可调整利率抵押贷款需要做贷款重估！~
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Types of Residential Mortgage Loans
(continued)
Credit Guarantees信用担保
In contrast to government loans （政府贷款）,
there are loans that have no explicit guarantee
from the federal government.
Such loans are said to be obtained from
“conventional financing” 常规贷款 and therefore
are referred to in the market as conventional loans.
A conventional loan can be insured by a private
mortgage insurer.（私人抵押贷款保险商）
只有政府贷款美国政府全额信用保证，房利美和房地
美没有。 但是一些私人抵押贷款保险商会提供保险。
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Conforming Loans 合规贷款
Freddie Mac and Fannie Mae are government-sponsored
enterprises (GSEs) whose mission is to provide liquidity and
support to the mortgage market.
While Fannie Mae and Freddie Mac can buy or sell any type
of residential mortgage, the mortgages that are packaged into
securities are restricted to government loans and those that
satisfy their underwriting guidelines.
The conventional loans that qualify are referred to as conforming
loans.
A conforming loan is simply a conventional loan that meets the
underwriting standard of Fannie Mae and Freddie Mac.
Thus, conventional loans in the market are referred to as
conforming conventional loans and nonconforming conventional
loans. 合规和非合规 常规贷款
看是否满足“两房”的标准
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Conforming Loans (continued)
Qualifying for a conforming loan is important
for both the borrower and the mortgage
originator.
This is because the two GSEs are the largest
buyers of mortgages in the United States.
Hence, loans that qualify as conforming loans have
a greater probability of being purchased by Fannie
Mae and Freddie Mac to be packaged into an MBS.
As a result, they have lower interest rates than
nonconforming conventional loans.
中国的住房公积金贷款也有类似之处！
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10-31
Types of Residential Mortgage Loans
(continued)
Loan Balances
For government loans and the loans guaranteed by
Freddie Mac and Fannie Mae, there are limits on
the loan balance.
The loan limits, referred to as conforming limits
（合规限额）, for Freddie Mac and Fannie Mae
are identical because they are specified by the
same statute.
Loans larger than the conforming limit for a given
property type are referred to as jumbo loans.（巨
额贷款）
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Types of Residential Mortgage Loans
(continued)
Prepayments and Prepayment Penalties 提前还
款和罚金
Homeowners often repay all or part of their mortgage
balance prior to the scheduled maturity date.
The amount of the payment made in excess of the
monthly mortgage payment is called a prepayment.
This type of prepayment in which the entire mortgage
balance is not paid off is called a partial payment or
curtailment.
When a curtailment is made, the loan is not recast.
Instead, the borrower continues to make the same monthly
mortgage payment.
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Types of Residential Mortgage Loans
(continued)
Prepayments and Prepayment Penalties
The more common type of prepayment is one where
the entire mortgage balance is paid off.
All mortgage loans have a “due on sale” clause, which
means that the remaining balance of the loan must be
paid when the house is sold.
Effectively, the borrower’s right to prepay a loan in
whole or in part without a penalty is a called an
option.
A mortgage design that mitigates the borrower’s right
to prepay is the prepayment penalty mortgage.提前还
款惩罚贷款
提前还款会让贷款人面临什么风险？
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Risks Associated with Investing in
Mortgage Loans
Investors face four main risks by investing in
residential mortgage loans:
i. credit risk 信用风险
ii. liquidity risk 流动性风险
iii. price risk 价格风险
iv. prepayment risk 提前还款风险
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Risks Associated with Investing in
Mortgage Loans (continued)
Credit Risk
Credit risk is the risk that the homeowner/borrower will
default.
For FHA- and VA-insured mortgages, this risk is minimal.
The LTV ratio provides a useful measure of the risk of
loss of principal in case of default.
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Risks Associated with Investing in
Mortgage Loans (continued)
Liquidity Risk
Although there is a secondary market for mortgage loans, the
fact is that bid-ask spreads are large compared to other debt
instruments.
That is, mortgage loans tend to be rather illiquid because they
are large and indivisible.
The degree of liquidity determines the liquidity risk.
Price Risk
The price of a fixed-income instrument will move in an
opposite direction from market interest rates.
Thus, a rise in interest rates will decrease the price of a
mortgage loan.
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Risks Associated with Investing in
Mortgage Loans (continued)
Prepayments and Cash Flow Uncertainty
The three components of the cash flow are:
i. interest
ii. principal repayment (scheduled principal repayment or amortization)
iii. prepayment.
Prepayment risk is the risk associated with a mortgage’s cash flow due to
prepayments.
More specifically, investors are concerned that borrowers will pay off a
mortgage when prevailing mortgage rates fall below the loan’s note rate.
