Beruflich Dokumente
Kultur Dokumente
Land and all natural part of the land and attachments to the land e.g.
buildings, etc
All rights, interests and benefits related to ownership of real estate
The study of the institutions, markets and instruments used to transfer
money and credit for purpose of developing or acquiring real property
- Contract results in mutual benefits
- Inherent risks to one/both parties
Air Rights
Surface
Rights
Land
Characteristics (Read
notes):
- Physical
- Institutional
- Economic
Real Estate
(physical)
Mineral
Rights
Fixtures
To-the-land
Right to
Use
Real
Property
Ownership
rights
(legal)
Improvements
On-theland
Right to
Possess
Right to
exclude ppl
Right to
dispose
Moneyness
Divisibili
ty
Currency
Convertibili ty
Role of Financial Assets
-
Reversibility
Term to
maturity
Complexity
Liquidity
Tax Status
Transfer funds from those with surplus to invest on those who needs funds.
Redistribute risk generated by tangible assets among seekers and providers of funds
Financial Markets
Major Institutions in financial markets
-
Households
Depository institutions
(banks)
Investment banks
Governments
Insurance companies
Nonfinancial Corporations
Asset management firms
Non-profit organizations
Foreign investors
Transform financial assets into a different, and more widely preferable type of asset
Exchange financial assets both for customers and own account
Assist in creation of financial assets for customers and selling these assets
Provide investment advice and manage portfolio of other market participants
Common Stock
Bonds
o Residential MBS
o Commercial MBS
o CDOs
Derivatives (Value
depends on assets)
Financial Intermediaries
Role of Financial Intermediaries
-
Mortgage
document
Promissory
Note
Special form of debt that uses real estate as a security for the loan
Gives lender a lien on the property
- If property is sold, owner not entitled to cash proceeds until loan amount
and interest accrued have been paid off
- Owners interest subordinate to lenders interest
Pledges the property as collateral for the loan
Real rate
of Interest
f 1 , Inflation
Expectation
p1 , Risk
Premiums
i t=r 1+ p1 + f 1
Amortization Scheme
Constant Payment Mortgage: Loan is fully amortized with level payments
Graduated Payment Mortgage: Loan is fully amortized with rising payments
Constant Amortization Mortgage: Loan balance reduced by a constant amount each
period
Borrower took on a $500,000 loan at 5% interest for 30years
Constant Payment Mortgage
Constant Amortization Mortgage
1) Compute Monthly Debt Service
1) Compute constant amortization
5
amount
PV =500,000 ; n=360 ; i=
12
; FV =0
Amortization=
PMT =$ 2,684.11
500,000
360
$ 1,388.89
5
12
5
PMT =2,684.11 ; n=359 ; i= ; FV =0
12
i month 1=500,000
PV =499,399.23
i month 2=498,611.11
5
12
$ 2,077.55
M 1=1388.89+ 2083.33
$ 2,083.33
$ 3,472.22
PV =60,000 ; n=360 ; i=
12
; FV =0
12
PMT =$ 617.17
2) Calculate net cash disbursed (Loan amount Origination fee / Discount points =
Net disbursed)
58,200
i=1.034
Monthly
$58,597.93 = $60,355.87
i=1.1043
Usage
Allows lender to adjust contract i/r to
reflect changes in market i/r. Change in
rate reflected by change in monthly
payment
Mathematics
Loan Amount =
$100,000
Index = 1 year
Margin = 2.50
See Notes for computation
Term
=
30
years
i n=min ( Index + Margin , in 1 +Cap)
2/6 i/r caps
Teaser Rate = 5%
Graduated Payment Mortgage designed to offset tilt effect by lowering payments on an FRM early on
and increasing over time
GraduatedPayment
Mortgage
Price-Level
Adjusted
Mortgage
$100,000
30years,
6%
interest
PMT in Year
1
4% inflation
PV =100,000 ; n=360 ; i=
6
12
PMT =$ 599.55
Year 2
4% inflation
6
12
PMT =$ 625.53
Year 3
-3% inflation
6
12
PMT =$ 604.83
Year 4
2% inflation
6
12
PMT =$ 616.92
Year 5-30
0% inflation
PV =98,868 ; n=312; i=
6
12
PMT =$ 612.92
8
Shared
Appreciation
Mortgage
a=
V
, a :share of appreciation , V : LTV , :reductionloan
1t
'
Disadvantages
GraduatedPayment
Mortgage
Advantages
Adjustable-Rate
Mortgage
Shared
Appreciation
Mortgage
Reverse
Annuity
Mortgage
Flexible Loan
Insurance
Program
Flexible
Maturity
Adjustable Rate
Mortgages
10
PMT =$ 842.58
PMT =$ 1,015.05
i=1.7142 12=20.570
Evaluate this percentage. Would you pay 20.57% interest just to borrow an extra
$10,000?
Assume borrower relocates after 5 years
Loan Outstanding EOY5 76,522.56
PV =10,000 ; FV =10,117.32 ;
i=1.73596 12=20.832
With 2% origination fee
$ 78,400
$ 88,200
i=1.750 12=21.00
PMT =$ 842.58
PMT =$ 995.58
11
Loan Refinancing
$80,000 loan at 15% for 30 years 5 years ago
Stick
Switch
Refinance at 14% for 25 years, 2%
prepayment penalty and upfront fee
payable to $2,525
Year 0
EOY5
PMT =$ 1011.56
PMT =$ 950.69
new monthly payment =$ 950.69
Returns from Refinancing Investment
2 $ 78,976.50+2,525=$ 4,104.53
$ 60.87
Individual Loans
$100,000 at 7%, 30 years
$200,000 at 7.5%, 20 years
$200,000 at 8%, 10 years
Payment of individual
loans
PMT =$ 665.30
PMT =$ 1,611.19
PMT =$ 2,426.55
12
13
Formula
Loan-toValue (LTV)
Loan
LTV =
Property Value
Payment to
Income
Ratio
-ORMortgage
Servicing
Ratio
Debt
Coverage
Ratio
Breakeven
Ratio
Example
DCR=
CashTopup ( CPF)
Debt Service
LTV =0.8
PIR=
4540
=0.8255>TDSR
5500
$150
0
Car Insurance
250
Credit Card
700
Personal Loan
500
Property tax & Insurance
300
Bank to grant 25-year 80% LTV at 3.5% p.a. with monthly payments subject to HEIR
30% and TDSR 60%
Gross Monthly Income
$7,7
80
Times: HEIR
0.30
Max Permissible long term obligations
$2,3
Housing61
Expense to
Less: Property tax & insurance
300
Income
Max Principal & interest payment
$2,0
Ratio
61
PV =$ 411,687
maxloan=$ 411,687
Total Debt
Service
Ratio
$7,7
80
0.60
$4,7
22
14
300
2950
3,25
0
$1,4
72
PV =$ 294,033
maxloan=$ 294,033
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Others
- Customer
loans
- Credit Card
Receivables
- Leasing
Receivables
-Future cash
flows
Asset Risk
-
Underlying borrowers
ability to pay and
service loans
Experience of
Mortgage
Backed
Security
- RMBS
- CMBS
(income
producing)
Collateralized
Debt Obligation
- Collateralized
Loan Obligation
- Collateralized
Bond Obligation
Credit Risks
Structural Risk
Can Cash Flow satisfy all
obligations?
- Loss allocation
- Cash flow allocation
Third-Party
Providers
Credit
guarantors
(bond
insurers)
16
originators
Concentration of loans:
a single huge loan
borrower?
Assessment of most
likely lost via weighted
average loss &
variability of loss
Servicer
Trustee
Lawyer
Senior
Subordinate
d Structure+
Internal
Credit
Enhanceme
nt
Excess
Spread
Overcollateraliza
tion
External
Monoline
Insurance*
1
12
Monthly Prepayment =SMM ( beginning bal for month tscheduled principal payment for month t)
Default Risk
1) Conditional Default Risk (CDR)
Annualized value of unpaid principal balance of newly defaulted loans in a month as
percentage of unpaid balance of pool
CDR M =
defaulted loanbalance
beginning bal for month tscheduled principal payment month t
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Securitization: SPVs are commonly used to securitise loans. For example, a bank
may wish to issue a mortgage-backed security whose payments come from a pool of
loans. However, to ensure that the holders of the mortgage-back securities have the
first priority right to receive payments on the loans, these loans need to be legally
separated from the other obligations of the bank. This is done by creating an SPV,
and then transferring the loans from the bank to the SPV.
Risk sharing: Corporates may use SPVs to legally isolate a high risk project/asset
from the parent company and to allow other investors to take a share of the risk.
Finance: Multi-tiered SPVs allow multiple tiers of investment and debt.
Asset transfer: Many permits required to operate certain assets (such as power
plants) are either non-transferable or difficult to transfer. By having an SPV own the
asset and all the permits, the SPV can be sold as a self-contained package, rather
than attempting to assign over numerous permits
Asset-Backed Securities
When a consumer takes out a loan, their debt becomes an asset on the balance sheet
of the lender, collecting principal and interest payments from borrowers. The lender can
then sell these assets to a trust or special purpose vehicle, which packages them into
an asset backed security (ABS) that can be sold in the public market. The interest and
principal payments made by consumers pass through to the investors that own the
asset backed securities.
ABS benefit lenders because they can be removed from the balance sheet, allowing
lenders to acquire additional funding as well as greater flexibility to pursue new
business. 1) Investors of ABS and MBS are usually institutional investors and they use
ABS to obtain higher yields than comparable-maturity U.S. Treasury securities among
triple-A rated assets, as well as to provide a way to diversify their portfolios and
augment their portfolio diversification. 2) ABS are one of the most secure investment
vehicles from a credit standpoint. Predictable cash flow. The certainty and predictability
of cash flow for many types and classes of ABS are well established. Investors can buy
these securities with considerable confidence that the timing of payments will occur as
expected. (Prepayment uncertainty). 3) Because ABS are secured by underlying assets,
they offer significant protection against event-risk downgrades, particularly in contrast
to corporate bonds. A major concern investors have about unsecured corporate bonds,
no matter how highly rated, is that the rating agencies will downgrade them because of
some disruptive event affecting the issuer. Such events include mergers, takeovers,
restructurings and recapitalizations, which are often undertaken by corporate managers
trying to boost shareholder value.
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Name
Simple
Interest
Formula
Usage
Interest earned on
principal amount only
i=Principal i /r
Present Value
Future Value
Annuity
FV =PV
PV =FV
FVA=PMT
1
i
Compute compound
interest
Value of an investment in
todays money
FVA=100
Sinking Fund
Factor
(PMT)
Present Value
Annuity
PMT =FVA
i
1
Arrears
1
PVA=PMT
=PMT
1PV
i
PVA=PMT ( 1+ i )
Mortgage
Constant
10
12
PMT =33,100
3 12
10
1+
12
1
PVA=300
1
8
1+
12
8
12
PMT =PVA
5 12
8
1
12
=
8
12
1+
Advance
1
=
( 1+ 0.07 )1
PV =105,000
PMT =100,000
1
1
n= years
(1+7 )1
Loan
Outstanding
Same PM
i
1
m
( )
EAR= 1+
EAR= 1+
12
12
12
) 1=0.126
1
1+r
20