Introduction to Mortgages and Mortgage Backed Securities

Introduction to Mortgages and Mortgage Backed Securities

1st Edition - November 1, 2013

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  • Author: Richard Green
  • eBook ISBN: 9780124045934

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In Introduction to Mortgages & Mortgage Backed Securities, author Richard Green combines current practices in real estate capital markets with financial theory so readers can make intelligent business decisions. After a behavioral economics chapter on the nature of real estate decisions, he explores mortgage products, processes, derivatives, and international practices. By focusing on debt, his book presents a different view of the mortgage market than is commonly available, and his primer on fixed-income tools and concepts ensures that readers understand the rich content he covers. Including commercial and residential real estate, this book explains how the markets work, why they collapsed in 2008, and what countries are doing to protect themselves from future bubbles. Green's expertise illuminates both the fundamentals of mortgage analysis and the international paradigms of products, models, and regulatory environments.

Key Features

  • Written for buyers of real estate, not mortgage lenders
  • Balances theory with increasingly complex practices of commercial and residential mortgage lending
  • Emphasizes international practices, changes caused by the 2008-11 financial crisis, and the behavioral aspects of mortgage decision making


Upper-division undergraduates and graduate students studying real estate finance and capital markets.  Common course titles include "Mortgages and Mortgage-Backed Securities and Markets," "Real Estate Analysis," and "Investment Property Analysis." 

Table of Contents

  • Contributors and Acknowledgments

    Chapter 1. A Brief History of Mortgages


    The Great Depression, the New Deal, and the Transformation of the American Mortgage Market

    The Post World War II Era


    Chapter 2. Mortgage Originations and the Mortgage Chain


    Loan Origination


    The Securitization Process



    A Summary: The Mortgage Chain


    Chapter 3. The Work-Horse American Mortgage: The 30-Year Fixed-Rate Mortgage


    The Popularity of the 30-Year Fixed-Rate Mortgage


    Chapter 4. Other Types of Mortgages


    Interest-Only Mortgages

    Pay Option ARMS, PLAMS, and Other Negative Amortization Mortgages

    Exotic Mortgages

    Second Lien Mortgages


    Chapter 5. Underwriting Mortgages and Mortgage Default



    Underwriting Criteria

    Automated Valuation Methods

    Putting it Together


    Chapter 6. Mortgage-Backed Securities and Derivatives


    Types of Tranches

    Chapter 7. Multifamily Mortgages


    Property-Based Underwriting Standards

    Underwriting the Borrower

    Commercial Loan Covenants

    Sources of Multifamily Finance

    The 5–50 Problem

    Section 42 Low Income Housing Tax Credit Program

    Modeling the Cost of Default for a Multifamily Property


    Chapter 8. International Comparisons of Mortgages


    Tax Treatment of Mortgages

    Sources of Funding

    Differences in Government Intervention in Mortgages

    How Consumer-Friendly Is the US Mortgage?

    Size of Mortgage Markets

    Mortgages and Macro-Prudential Supervision


    Chapter 9. The Subprime Crisis


    Those Who Saw it Coming

    Those Who Said House Prices Would Rise Forever

    Ex Post Views on Causes of the Financial Crisis


    Rating Agencies


    Supply Chain


    Chapter 10. Consumers in Mortgage Markets


    Economic Models of Mortgage Loan Choice

    Prepayment and Default Decisions

    Consumer Knowledge and Mortgage Decisions

    Behavioral Decision-Making Perspectives and Mortgage Borrowers

    External Influences on Mortgage Decisions

    The Home Purchase Decision

    Consumer Protection in Mortgage Markets

    Conclusion: What’s the Optimal Mortgage for a Borrower?


    Chapter 11. The Yield Curve, Monte Carlo Methods, and the Option-Adjusted Spread


    Interest Rate Models

    Monte Carlo Methods



    Chapter 12. A Brief Discussion of Duration and Convexity



    Problems Created by Duration-Convexity

    Methods for Managing Mortgage Interest Rate Risk

    Option Adjusted Spread

    How Investors Think They Can Make Money Using Convexity


    Chapter 13. The Rise and Fall of Fannie Mae and Freddie Mac: Lessons Learned and Options for Reform



    How Fannie Mae and Freddie Mac Support the Mortgage Market

    A Brief History of Fannie Mae and Freddie Mac

    The Benefits of the GSE Model

    Inherent Weaknesses and Criticisms of the GSE Approach

    Principles for Reform

    Alternative Models




Product details

  • No. of pages: 256
  • Language: English
  • Copyright: © Academic Press 2013
  • Published: November 1, 2013
  • Imprint: Academic Press
  • eBook ISBN: 9780124045934

About the Author

Richard Green

Richard Green
Richard Green is Director of the Lusk Center for Real Estate at the University of Southern California. Prior to joining the USC faculty, he was Oliver T. Carr Jr. Chair of Real Estate Finance at The George Washington University School of Business. He was previously Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics at the University of Wisconsin, Madison.

Affiliations and Expertise

Director of the Lusk Center for Real Estate, University of Southern California, Los Angeles, USA

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