a primer on the mortgage market and mortgage finance.pdfVIP

A rimer on the Mortgage Market and Mortgage Finance Daniel J. McDonald and Daniel L. Thornton This article is a primer on mortgage finance. It discusses the basics of the mortgage market and mortgage finance. In so doing, it provides useful information that can aid individuals in making better mortgage finance decisions. The discussion and the tools are presented within the context of mortgage finance; however, these same principles and tools can be applied to a wide range of financial decisions. (JEL 0, 1) Federal Reserve Bank of St. Louis Review, January/February 2008, 90(1), pp. 31-45. he United States was in the midst of a rates on mortgage-backed securities rose, while residential real estate boom from 1996 rates on risk-free Treasury bills declined Tto 2005, and the U.S. Census Bureau dramatically.2 reports for that period show that home- Against this backdrop, this article serves as ownership—the percentage of home-owning a primer on mortgage finance. It discusses the households—increased from 65.4 percent to 68.9 basics of the mortgage market and mortgage percent. During this decade, the Standard finance, providing useful information that can Poor/Case-Shiller Home Price Index rose at a aid individuals in making better mortgage finance compounded annual rate of 8.5 percent per year, decisions. Although the discussion and the tools more than four times faster than the rate of infla- are presented within the context of mortgage tion. row