Final answer:
Conventional and government-backed loans are integral parts of the financial instruments available for home purchasing, with banks traditionally vetting borrowers in the primary loan market and the rise of loan securitization altering lender incentives in the secondary market. The bank's perspective views a mortgage loan as an asset, with its value being what it can fetch in the secondary market.
Step-by-step explanation:
When discussing conventional loans and government-backed loans, we are addressing various financial instruments available to prospective homebuyers. In the past, the primary loan market involved local banks scrutinizing a borrower's ability to repay a mortgage loan, as the banks would directly face the financial consequences of a default. Over time, changes in banking laws allowed for the securitization of mortgage loans, enabling the sale of these loans as bonds in what is known as the secondary loan market. This degree of separation between the lender and the borrower has implications for the lender's incentives and the broader financial system.
In terms of the bank's assets, a mortgage loan is an asset because it is backed by the borrower's legal obligation to make payments over the term of the loan, commonly 30 years. The current value of this loan can be estimated by what another party is willing to pay for it in the secondary market. Aspects such as interest rates and inflation play significant roles in determining the attractiveness of taking out a mortgage loan or providing one, as indicated in historic data tables like Table 19.11.