FIN 3334 Real Estate Finance Fall 2009
Room: Time: Professor: BA 157 9:30 a.m. - 10:50 a.m., Tuesdays and Thursdays David M. Harrison, Ph.D. Office: BA 715 Phone: (806) 742-3190 e-mail: david.m.harrison@ttu.edu 11:00 a.m. – noon, Tuesdays and Thursdays, and by appointment. I will also be available to answer questions after class. Terrence M. Clauretie and G. Stacy Sirmans, Real Estate Finance: Theory and Practice, 6th edition, Thomson – Southwestern, 2009. Financial Calculator -- HP 10BII, or TI BA2+ recommended (No graphing calculators will be allowed) Access to Microsoft Excel Course Description: 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. Course Objectives: After completing this course, the student should be able to: Understand and explain the economic and legal 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. Course Requirements: 1) Examinations 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
Office Hours:
Required Materials:
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!!! Grading: 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. I reserve the right to reward consistent class contribution with bonus points. ADA: Any student who, because of a disabling condition, may require some special arrangements in order to meet course requirements should contact the instructor as soon as possible to make necessary accommodations. Students should present appropriate verification from P.A.S.S. No requirement exists that accommodations be made prior to completion of this approved University process. Honor Code: “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
8/27 9/1 9/3 9/8 9/10 9/15 9/17 9/22 9/24 9/29 10/1 10/6-10/8 10/13 10/15 10/20 10/22 10/27 10/29 11/3 11/5 11/10-12 11/17 11/19 11/17 11/19 11/24 11/26 12/1 12/3 12/8 12/11 Introduction to Real Estate Finance The Theory of Financial Intermediation Credit Flows and Interest Rate Determination in Real Estate Markets Inflation and Asset Returns in Real Estate Review of Financial Management and Real Estate Fundamentals The Basics of Mortgage Mathematics Predatory Lending – Fact or Fiction??? Applied Finance Theory and Real Estate, Part I Applied Finance Theory and Real Estate, Part II Real Estate Return Metrics Mortgage Markets Participants and Practices *** EXAMINATION #1 *** *** Fall Break – No Classes *** Maturity, Duration, and Interest Rate Risk in Mortgage Markets Embedded Options and Convexity Implications for Mortgage Securities The History of Residential Real Estate Finance AMIs: Adjustable Rate and Graduated Payment Mortgages The Alphabet Soup of AMIs: PLAMs, SAMs, RAMs, and PAMs Mortgage Refinancing Creative Financing and Property Values *** EXAMINATION #2 *** Federal Housing Policies: Affordability, Efficiency, and Stability Federal Housing Policies: Discrimination in Housing/Lending Markets The Secondary Mortgage Market: Size, Growth and the Role of GSEs Fannie Mae and Freddie Mac Valuing Mortgage Related Securities: Pass-Throughs and Mortgage-Backed Bonds *** THANKSGIVING BREAK – NO CLASS *** Valuing Mortgage Related Securities: Collateralized Mortgage Obligations (CMOs) Valuing Mortgage Related Securities: Strips, Floaters, and Servicing Rights Mortgage Underwriting: Measuring and Mitigating Default Risk *** FINAL EXAMINATION – 7:30 a.m. to 10:00 a.m. ***