Overview of Mortgages and the Consumer Mortgage Market
The mortgage market in the United States has emerged as one of the world’s largest asset classes. According to Federal Reserve statistics, the total face value of 1-4 family residential mortgage debt outstanding was approximately $9.5 trillion as of the third quarter of 2006. The growth of the mortgage market is attributable to a variety of factors. Most notably, strong sales and price growth in the domestic real estate markets and the increased acceptance of new loan products on the part of the consumer has dovetailed with increased comfort levels with respect to the credit quality of the sector and the acceptance of a variety of loan products as collateral for securitizations.
Due to a variety of reasons such as product innovation, technological advancement, and demographic and cultural changes, the composition of the primary mortgage market is evolving at a rapid rate—older concepts are being updated, while a host of new products is also being developed and marketed. Consequently, the mortgage-lending paradigm continues to be refined in ways that have allowed lenders to offer a large variety of products designed to appeal to consumer needs and tastes. This evolution has been facilitated by sophistication in pricing that has allowed for the quantification of the inherent risks in such loans. At the same time, structures and techniques that allow the burgeoning variety of products to be securitized have been ...