Assumptions and Behavior of Mortgage Parties

Subject: Finance
Pages: 1
Words: 271
Reading time:
< 1 min

Households are homeowners who borrow house loans in the form of mortgages. They pay a given percentage of the total cost as a down payment and later make monthly contributions from their incomes.

Mortgage brokers are intermediaries that are contracted by financial institutions. They convince households to borrow house loans and earn commissions based on transactions.

Retail (commercial) bankers are direct lenders that provide mortgages to households through brokers. In most cases, they sell housing credit facilities to investment banks at a profit. They acquire funds from the Federal Reserve, which determines the amount of money given to each retail banker on the platform of financial leverage.

Investment bankers are large financial institutions that comprise multinational banks, which purchase multiple mortgages from retail bankers. They liaise with credit rating agencies to rank CDO packages based on exposure to risks.

Investors are wealthy individuals or corporations that seek investment opportunities in the housing sector. They purchase CDOs by considering the safest packages available.

Insurance companies provide guarantees in case of defaults or poor financial conditions. They ensure companies are against investment risks and take liabilities when financial problems occur.

The Federal Reserve is the central banking institution of America. It sells treasury bills to investors at a 1% interest rate.

Credit rating companies evaluate mortgaged assets and assess risks attached to each investment. They classify investments in terms of high risk, moderate risks, and low-risk investments based on returns, exposure to loan defaults, and concentration of investors.