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Financial Engineering: The Evolution of a Profession by Cara M. Marshall, Tanya Beder

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Chapter 5

The U.S. Mortgage Market

Bruce McNevin

The Midway Group

Mortgage Market Snapshot

History: After the Great Depression, the United States federal government created several government and government-sponsored agencies in order to provide government-guaranteed mortgage insurance and create a liquid secondary market so that more loans could be issued. The secondary mortgage market in the United States became active in the 1970s, and extended to the private sector when Bank of America National Trust & Savings Association became the first truly private issuer of mortgage-backed securities in 1977. The secondary mortgage market reached great heights by the mid-2000s; however, with the recent subprime mortgage crisis, people have been rethinking the ways in which mortgage-related instruments have been packaged and issued.

Size: Total outstanding mortgage-related debt in the United States is about $14.1 trillion as of the first quarter of 2010, according to the Federal Reserve.

Products: Today's market offers investors an array of investment options, ranging from simple generic pass-through bonds to a diverse set of structured mortgage-backed securities (MBSs) with very complicated cash flow patterns.

First Usage: In 1970, the Government National Mortgage Association, or Ginnie Mae, issued the first mortgage pass-through security that passed the principal and interest payments on mortgages to investors by pooling together qualified mortgage loans.

Selection of Famous Events: ...

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