Subprime Mortgages and Banking in a DSGE Model

Discussion of “Risky Mortgages in a DSGE Model”

This is an interesting paper on a timely topic. As the authors argue, the recent global financial crisis has its roots in increased mortgage delinquencies caused by the bursting of the housing bubble in the United States. By what mechanism does such an increase in mortgage delinquencies affect the rest of the economy? And how should policy react to it? To address these issues, the authors devel...

Optimal Stopping and Losses on Subprime Mortgages

Lender losses on mortgage loans arise from a two-stage process. In the first stage, the borrower stops making payments if and when default is optimal. The second stage is a lengthy and costly period during which the lender employs legal remedies to obtain possession and execute a sale of the collateral. This research uses data on subprime mortgage losses to explore the role of borrower and coll...

Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures

Unexpected Banking Loan Losses in an Estimated DSGE Model

  In spite of realizing more loss than expected and reserved provision in loaning process, some of our banks avoid recognizing the losses, through extension of the loan contracts and consequently do not shift the realized losses to their capital. With this in mind, the major objective of this study is to design a frame-work, through which we can explain the differences between the results of t...

The Canary in the Coal Mine: Subprime Mortgages, Mortgage-Backed Securities, and the US Housing Bust

Introduction Recent events in the residential mortgage industry have verified what many of us expected all along: that the bursting of the housing bubble is already exerting dramatic and wide-ranging pressure on the US economy. As the housing market continues to decline, consumer spending will contract and financial institutions will suffer as housingrelated financing instruments take the plunge.