Patrick Power PRO
Economics PhD @ Boston University
Based Largely on Chapter Three of Alex F. Schwartz "Housing Policy in the United States"
"Economics has long chafed at its association with “soft” fields such as philosophy and history and thus spent most of the 20th century trying to imitate the hard sciences by becoming more mathematically rigorous. But this attempt didn’t work, because trying to explain the world via mathematical models is still fundamentally interpretive, requiring crucial assumptions about which factors belong in one’s formula at all. The shift instead plunged economics even deeper into esoteric theorizing and insider jargon."
Incentive
Net Effect
Assets
Libabilities
Bank
Mortgages
Deposits
Liquidity Risk:
Interest Rate Risk:
Key Risks
Maturity Transformation Problem
Home Loan Bank System (1932)
Home Owners Loan Corporation (1933)
Federal Housing Administration (1934)
The Federal National Mortgage Association (1938)
FHA Insured Mortgages
Fannie Mae
Investors
Mortgages
$
Bonds
$
Loans
Securities
Thrifts
Homeowner
Home Loan Bank
Homeowner
Mortgage Company
FHA
FANNIE MAE
Mortgages Prior to 1980
Community Reinvestment Act (1977)
Residential Mortgage Backed Securities
RMBS
Senior Tranche
Mezzanine Tranche
Equity Tranche
Lower Tranches
Subprime Loan
Alt-A Mortgages
Prime Loan
Issuance of mortgage- backed securities, by type, in billions of 2018 dollars
Percent of home mortgages starting foreclosure
Bear Stearns
JPMorgan Chase
Lehman Brothers
Bankruptcy
Merril Lynch
Bank of America
Fannie Mae & Freddie Mac
Conservatorship
Qualified Mortgages (Consumer Financial Protection Bureau)
"Senior tranches received the highest ratings, mezzanine tranches lower ratings, and the equity tranches were not rated at all"
"While mortgages on second homes and investment properties can be restructured in bankruptcy court, mortgages on one’s primary residence cannot"
By Patrick Power