Real Estate Finance
Room: BA 157
Time: 8:00 a.m. - 9:20 a.m., Tuesdays and Thursdays
Professor: David M. Harrison, Ph.D.
Office: BA 715
Phone: (806) 742-3190
Office Hours: 7:00 a.m. – 8:00 a.m., Tuesdays and Thursdays, and by appointment.
I will also be available to answer questions after class.
Required Materials: Terrence M. Clauretie and G. Stacy Sirmans, Real Estate Finance:
Theory and Practice, 6th edition, Cengage Learning, 2010.
Financial Calculator -- TI BA2+ recommended
(No graphing calculators will be allowed)
This course covers the financial institutions and contractual instruments which are critical
to the efficient functioning of both the residential and commercial real estate markets.
Particular attention is given to the unique incentive problems which give rise to the
institutions and contracts we presently observe in the marketplace, as well as the
valuation of various mortgage instruments and mortgage-related securities.
Student Learning Outcomes/Course Objectives:
After completing this course, the student should be able to:
Understand and explain the economic foundations of US real estate markets.
Understand and evaluate both the risks and returns associated with alternative
mortgage instruments and mortgage related securities.
Differentiate between the primary and secondary mortgage markets, and
understand the role and importance of each.
There will be three examinations given during the semester. Each of the mid-term
examinations will take place on (approximately) the dates indicated on the course
outline below. Make-up exams will not be offered unless there are extreme
extenuating circumstances and the student brings the potential conflict to my
attention well before the scheduled examination date.
2) Assignments, Problem Sets, and Quizzes
Over the course of the semester, a number of assignments, problem sets, and
quizzes will be administered. The assignments will be designed to give students
practice in solving “real world” problems. In order to complete parts of the
assignments you will need to use a financial calculator and/or a spreadsheet
program such as Excel. If you are not familiar with these tools, please see me
immediately. You may consult with fellow students in completing these
assignments, however, each student must turn in their own write-up for each
problem set. Generally, students will have 2-7 days to complete each assignment,
while quizzes are typically unannounced and focus on material covered in the
previous class meeting or assigned reading. Take special note of the due date for
each problem set: LATE WORK WILL NOT BE ACCEPTED!!!
Your final grade in the course will be determined according to the following weights:
Assignments, Quizzes, and Class Participation 20%
First Examination 30%
Second Examination 30%
Final Examination 20%
Attendance and Protocol:
Classroom participation is expected and encouraged. In particular, students are expected
to read the required materials before each class session, and be prepared to discuss them.
Students should arrive on time, expect to stay throughout the entire class period, and be
attentive/respectful to both the instructor and their fellow students. Cell phones are not
permitted in class.
Any student who, because of a disability, may require special arrangements in order to
meet the course requirements should contact the instructor as soon as possible to make
any necessary arrangements. Students should present appropriate verification from
Student Disability Services during the instructor’s office hours. Please note instructors
are not allowed to provide classroom accommodations to a student until appropriate
verification from Student Disability Services has been provided. For additional
information, you may contact the Student Disability Services office in 335 West Hall or
“It is the aim of the faculty of Texas Tech University to foster a spirit of complete
honesty and a high standard of integrity. The attempt of students to present as their own
any work that they have not honestly performed is regarded by the faculty and
administration as a serious offense and renders the offenders liable to serious
consequences, possibly suspension.”
Tentative Class Outline
8/25 Introduction to Real Estate Finance
8/30 The Theory of Financial Intermediation
9/1 Credit Flows and Interest Rate Determination in Real Estate Markets
9/6 Inflation and Asset Returns in Real Estate
9/8 Review of Financial Management and Real Estate Fundamentals
9/13 The Basics of Mortgage Mathematics
9/15 Predatory Lending – Fact or Fiction???
9/20 Applied Finance Theory and Real Estate, Part I
9/22 Applied Finance Theory and Real Estate, Part II
9/27 Real Estate Return Metrics
9/29 Mortgage Markets Participants and Practices
10/4-10/6 *** EXAMINATION #1 ***
10/11 *** Fall Break – No Classes ***
10/13 Maturity, Duration, and Interest Rate Risk in Mortgage Markets
10/18 Embedded Options and Convexity Implications for Mortgage Securities
10/20 The History of Residential Real Estate Finance
10/25 AMIs: Adjustable Rate and Graduated Payment Mortgages
10/27 The Alphabet Soup of AMIs: PLAMs, SAMs, RAMs, and PAMs
11/1 Mortgage Refinancing
11/3 Creative Financing and Property Values
11/8 Federal Housing Policies: Affordability, Efficiency, and Stability
11/10 Federal Housing Policies: Discrimination in Housing/Lending Markets
11/15-17 *** EXAMINATION #2 ***
11/22 The Secondary Mortgage Market: Size, Growth and the Role of GSEs
11/24 *** THANKSGIVING BREAK – NO CLASS ***
11/29 Valuing Mortgage Related Securities: Pass-Throughs and Mortgage-Backed Bonds
12/1 Valuing Mortgage Related Securities: Collateralized Mortgage Obligations (CMOs)
12/6 Mortgage Underwriting: Measuring and Mitigating Default Risk
12/13 *** FINAL EXAMINATION – 7:30 a.m. to 10:00 a.m. ***