DRAFT UNIVERSITY OF SOUTHERN CALIFORNIA MARSHALL SCHOOL OF BUSINESS

  CRIMINAL INVESTIGATION POWERS BILL EXPOSURE DRAFT CRIMINAL
NA NA PPM01000 DRAFT PURCHASE ORDER SCOPE OF
PKCS 15 CRYPTOGRAPHIC TOKEN INFORMATION FORMAT STANDARD (DRAFT) 54

3 DRAFT RESOURCES FOR WORKING
4 DRAFT 18 JULY 2000 MRPEDRO SAMPAIO
4 DRAFT RESOLUTION AVIAN INFLUENZA INTERAMERICAN COOPERATION

DRAFT


University of Southern California

Marshall School of Business

Department of Finance and Business Economics


Professor Richard K. Green

[email protected]

RGL 331B

213-740-4093

Assistant: Nina Tibayan ([email protected]) 213-740-0969

Office Hours Thursday 3 to 5

Fall 2017


Mortgages, Mortgage-backed Securities and Real Estate Capital Markets


FBE 589 (15473R)


Thursdays


A. COURSE OVERVIEW


This course provides graduate-level exposure to theory and analytical methods used for valuing and pricing mortgages, mortgage-backed securities, and derivatives. In doing so, this course provides insight into not just how mortgage-backed securities and real estate capital markets operate, but also why. It provides a broad overview of mortgage-backed security, in-depth discussion of specific structure finance products, and hands-on exercises to enhance learning of key concepts.


The growth in the scale and complexity of the U. S. mortgage market since the securitization revolution of the 1980s has been enormous. The volume of outstanding mortgage related securities has grown to 9.8 trillion as of the second quarter of 2019, of which about $600 billion is in commercial mortgage backed securities. In comparison, the volume of outstanding marketable Treasury securities was about $16 trillion, total corporate debt securities was about $8 trillion. The Federal agency mortgage-backed securities outstanding has increased by more than 20 times over the last two decades, from about $348 billion in 1987 to over $7 trillion currently. Currently, the Federal Government uses securitization to finance roughly 7 in 10 home mortgages in the United States. The commercial mortgage backed security market, which grew rapidly between 1990 and 2008, had almost no new transactions in 2009, with the exception of apartment loans financed by Fannie Mae and Freddie Mac. It made a robust recovery since then, but has not returned to its earlier state.

At the same time, the market also witnessed the unprecedented turmoil in the secondary mortgage market led by the meltdown of the subprime market starting in late 2006 and early 2007. Many large lenders, including Countrywide, Washington Mutual and Indy Mac, no longer exist. Fannie Mae and Freddie Mac are wards of the US Treasury, which owns preferred shares in both companies.


The primary objective of this course is to combine the theory of finance with the practice of real estate capital markets to enable you to make intelligent business decisions in increasingly complex and turbulent real estate markets.

B. COURSE ORGANIZATION AND REQUIREMENTS


The course is a combination of lectures, guest presentations, and discussions. There are several

assignments which will not be graded, but suggested answers to the assignments will be posted on Blackboard. There is also a group project to be completed by four-student teams. Your job will be to describe and argue for a Housing Finance Reform proposal. Each team should prepare a 15-minute PowerPoint presentation for class on November 30. There will be two quizzes, along with a take-home final exam. The final will be comprehensive.


C. COURSE GRADING


Two one-hour in class quizzes: 20%

Take-home comprehensive exam: 35%

Project 35%

Class Participation 10%


The mid-term and final will involve spreadsheet work. Key to your class participation grade will be questions you prepare for the readings The Big Short and The Signal and The Noise.


D. TEXTBOOKS AND READINGS


Textbooks:


Richard K Green, An Introduction to Mortgages and Mortgage Backed Securities.


Michael Lewis, The Big Short, Norton.


Optional: Davidson and Kerskovitz: The Mortgage Backed Security Workbook.


E. BLACKBOARD COURSE INFO WEB SITE

Lecture notes, assignments, solutions, your grades and other communications will be posted on a

Blackboard Course Info web site at http://blackboard.usc.edu under “20193_FBE_589_15473.”

Your login ID to the FBE 589 course web site is the first part of your USC email ID before

@usc.edu. Your password is your USC e-mail password. Please make sure you can access the

course web site and download the course materials there.


F. INSTRUCTOR ACCESS


I will hold office hours on Thursday from 3:00pm - 5:00pm or by appointment. Appointments are

recommended even during office hours as meeting schedules may occasionally conflict with

office hours. E-mail is a dependable way to communicate with me. I will respond to all emails within 24 hours.


Professor Richard K. Green

Office: Lewis Hall (RGL) 331B

Tel: (213) 740-4093

E-mail: [email protected]


G. ACADEMIC DISHONESTY

The use of unauthorized material, communication with fellow students during an examination,

attempting to benefit from the work of another student, and similar behavior that defeats the

intent of an examination, or other class work is unacceptable to the University. It is often

difficult to distinguish between a culpable act and inadvertent behavior resulting from the nervous

tensions accompanying examinations. Where a clear violation has occurred, however, the

instructor may disqualify the student’s work as unacceptable and assign a failing mark on the

paper.


H. DISABILITY STATEMENT

Any student requesting academic accommodations based on a disability is required to register

with Disability Services and Programs (DSP) each semester. A letter of verification for approved

accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or to

TA) as early in the semester as possible. DSP is located in STU 301 and is open early 8:30 a.m. -

5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776.


I. CLASS MEETINGS (Note: speaker dates might change)


Date Topics and References


1. August 29. Handout of Syllabus. Capital markets, banks and sources of mortgage lending.


2. September 5. Mortgage fundamentals: interest rates, amortization, product types.


Colwell and Dehring, Mortgage Mechanics, Part I http://business.illinois.edu/orer/V10-2-2.pdf


McDonald and Thornton, A Primer on the Mortgage Market and Mortgage Finance. http://research.stlouisfed.org/publications/review/08/01/McDonald.pdf


Green, Chapters 1-3.


3. September 12. Mortgage Fundamentals. Comparing Mortgage Costs. When to refinance. Difference between commercial and residential refinance decisions.


Sample term sheets for residential and commercial mortgages


Spreadsheet on trade-off between points and rates.


Davidson and Kerskovitz, Chapter 3.


Stanton and Wallace: Mortgage Choice: What’s the Point? Real Estate Economics, 26:2.


4. September 12. Risks. ULI Week.


Movie: The Big Short


Lewis: The Big Short



5. September 26. Interest rate fundamentals. Yield Curve and Term Structure of Interest Rates, Term Structure Models and Bond Pricing Models.


Green, Chapter 11.


Davidson and Kerskovitz, Chapter 8.


6. October 3. Exam I in Material through September 26. Mortgage Underwriting-residential.


Green, Chapter 5.


7. October 10. Mortgage Underwriting-commercial. Guest speaker: Steve Silk, Eastdil.


Geltner, Miller Clayton and Eicholtz, Commercial Real Estate: Analysis and Investments., edition 3e. Chapter 18


8. October 17. Fall recess.


9. October 24. Capital Market Conditions: Guest speaker: Kev Zorian, Morgan Stanley. Reading to be provided.


10. October 31. Residential and Commercial MBS: Fannie Mae, Freddie Mac, Ginnie Mae, Private Label. Market Risk and Prepayment Risk.


Green Chapter 12.


11. November 7. Distressed Debt: Case. Guest lecture and Case. John Loper.


12. November 14. Exam II on Material through November 7. Collateralized Mortgage Obligations.


Green, Chapter 6.


13. November 21. Managing Mortgage Risk—Owners and Lenders’ perspectives. Hedges. Caps and Swaps. Derivatives.


Pimco. Understanding Interest Rate Swaps. https://global.pimco.com/en-gbl/resources/education/understanding-interest-rate-swaps


14. November 28. Thanksgiving.


15. December 5. Group Presentations on WeWorks debt.




Take Home Exam due at end of Exam Period


H. USEFUL WEBSITE LINKS

Lusk Center for Real Estate (http://www.usc.edu/schools/sppd/lusk)

Glossary of Finance and Economic Terms

(http://www.freddiemac.com/finance/smm/a_f.htm#A)

REMIC & SMBS Securities Glossary

(http://www.fanniemae.com/markets/mbssecurities/product_info/remic/r_glossary.html)

Bloomberg Market Rates (http://www.bloomberg.com/markets/rates/index.html)

U.S. Census Bureau (http://www.census.gov/pub)

NAHB Economic and Housing Data (http://www.nahb.org/facts/default.htm)

Financial Services Facts (http://www.financialservicefacts.org/index.html)

Office of Federal Housing Enterprise Oversight (http://www.ofheo.gov)

FannieMae (http://www.fanniemae.com)

FreddieMac (http://www.freddiemac.com)

National Association of Real Estate Investment Trusts (http://www.nareit.org)

Mortgage Bankers Association of America (http://www.mbaa.org)

The Bond Market Association (http://www.bondmarkets.com)

National Mortgage News (http://www.nationalmortgagenews.com)

American Real Estate and Urban Economics Association (http://www.areuea.org)

Urban Land Institute (http://www.uli.org)

Journal of Real Estate Finance and Economics (http://www.jrefe.org)

Real Estate Economics (http://www.areuea.org/publications/ree/)

Urban Institute (http://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator)



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