The Secondary Market for

Residential Mortgages
- Informal (without government involvement)  early 1970s
- Tidak ada standarisasi (macam-macam dokumen
mortgages, cara penilaian, instumen collaterals)  difficult to
analyze risk and return of Mortgages  Tidak effective
secondary market  liquidity problem for mortgage
originators  fewer loan and higher interest rate on
mortgage  disintermediation that restricts flow of saving into
thrifts  Shutting the credit window
- Informal become formal  Fannie Mae, Freddie Mac
- Di Indonesia terdapat PT SMF (Persero)
 Mortgage-Backed Securities (MBSs)
- Mortgage Banker mengumpulkan Mortgage
Sejenis (misal 7,5%, 30 years, Level-Payment
Mortgage)  as collateral
- Based on collateral, Mortgage Banker issues MBS
dan dijual kepada ke investor dengan rate 7%
- Issuer only “passing through” ke investor namun
dengan rate 7%.
- Masih ada spread 0,5%, dan dipastikan bahwa
spread ini dapat menutup issuance and servicing
cost serta biaya untuk menyerap resiko gagal
bayar dalam pool of mortgage
- When mortgage is used as collateral for issuance
of MBS, then the mortgage is said to be
“securitized”
- Conduits  agencies that pool mortgage and
sell MBS
 Pembeli di Pasar Skunder
1. Ginnie Mae
- doesn’t issue, buy and sell mortgages and MBS
- guarantor of MBS, explicit backed by federal government while Freddie, Fannie arn’t
- Menjamin MBSs yang dijamin dengan FHA dan FA’ Pool
2. Fannie Mae
- to provide secondary market for FHA-Insured mortgages and VA-guaranted loans
- Created by Federal National Mortgages association in 1938 and in 1968 become Privat
- in 1970, start purchasing conventional mortgages
- Ended in September 2008, when US Goverment put GSEs in Conservatorship
3. Freddie Mac
- secondary market for mortgages originated by savings and loan assosiations
- Ended in September 2008, when US Goverment put GSEs in Conservatorship
Freddie and Fannie relatively similar in their operation  Buy Mortgages and Sell MBSs. The difference is
Fannie buys form Large Commercial Banks, but Freddie buys from thrifts or small banks
 Pentingnya Freddie dan Fannie
1. GSEs secara bersama mendorong keseragaman perjanjian mortgages,
formulir penilaian, dan pinjaman.
2. Mengeliminasi perbedaan tingkat bunga hipotek antar negara bagian
3. Mengurangi supply of unreliable mortgages fund (karena harus
conforming loans*)
4. MBS based on conforming loans widely accepted by investor
5. Mengurangi biaya/bunga yang dibayarkan oleh Borrowers

Conforming Loans is a mortgages loan that conforms to GSE guidelines

 Conservatorship Freddie dan Fannie
1. Terjadi saat krisis 2007-2008 dimana GSEs rugi US$ 14,9 Milliar
2. Kepada bisa rugi? Invest on poor quality loan
3. Pada akhirnya semua sepakat bahwa model bisnis macam GSE
ini is not viable karena dia adalah perusahaan privat (terbuka)
dimana harus mendapatkan high return for stock holders namun
dia mengemban misi sosial “to support liquidity, stability and
affordability to housing market”.
4. Isu terbaru bahwa Presiden Trump akan mengakhiri
conservatorship Freddie and fannie (Bloomberg.com)
 Pembeli di Pasar Skunder
4. Privat Conduits
- created by megabanks and megamortgages banking
- most rapidly growing source of Residential MBS
5. Federal Home Loan Banks
- to provide liquidity to savings and loans asssociations
- karena S&L industry memburuk maka berubah mjd wholesaler lender
6. Others
- Farm Credit System, Federal Agricultural Mortgages Corp, US Dept. of
Agricultural- Rural Development
- Kunci sukses nya adalah bisa mengeluarkan obligasi yang dikecualikan dari
pajak Federal. Jadi Investor obligasi tidak dikenakan pajak atas bunga yang
mereka dapatkan
3 securitization channels of Home Mortgages Lending

1. GNMA System
Ginnie Mae guarantee
credit to attract investors
2. Conforming Convent..
Credit Guarantee is issue
for internal
3. NonConforming Conven
- Senior-Subordinate
security structure
- Senior securities are
sold while subordinates
are retained to absorb
default on the Pool
 Lender’s Mortgages Loan Decision
a. Traditional Home Mortgages Underwriting (Three Cs)

1. Collateral
- Appraisal needed, because LTV is regarded as important factor to
calculate mortgage risk
- High LTV associated to default
2. Creditworthiness (Willingness to Pay)
- the most complex and uncertain element in underwriting
- In the mid 1990s, the process is replaced by statistical Credit Score
3. Capacity (Ability to Pay)
- Housing Expense Ratio = PITI/GMI
- Total Debt Ratio = (PITI+LTO)/GMI
 Lender’s Mortgages Loan Decision
b. Modern Home Mortgages Underwriting
To calculate Credit Score, we can use FICO, VantageScore. Because it
has more advantages than traditional one.
Home Financing for Marginal Borrower
1. Affordable Housing Loans
general strategy is to allow anusual flexibility in one of “three Cs” example: a loan
program might allow DP at 3% (normally 3,5%) while maintaining standard
payment burden and Minimum Credit Score.

2. Subprime Lending
Walaupun sudah ada Afforable Housing Loans, namun masih ada borrower yang
tidak masuk kualifikasi, yaitu credit scorenya rendah (weak credit), LtV 100% or
more dan mereka yang tidak dapat memperlihatkan dokumen pendapatannya.
Kriteria Subprime Lending:
- Bunga lebih tinggi
- Biaya pinjam lebih tinggi
- Included prepayment penalties
CONTOH KASUS