In many developed countries the standard annuity mortgage is increasingly being supplanted by mortgages with nonstandard features, such as longer terms or interest-only payments. Many of these new features aim to reduce the borrower’s monthly debt service in the initial period of the loan. This reflects both borrower demand (as house-price rises have led to affordability problems) and regulator...

The securitization of subprime mortgages in instruments like mortgage-backed securities and collateralized debt obligations is one of the key ingredients to the current financial crisis. During 2007 and 2008, subprime defaults increased sharply, displaying high serial correlation in their arrival. Subprime default events depend on house price changes. We establish a link between the dynamics of...

Variable-rate mortgages have been advocated as one means to alleviate the effects of high and volatile rates of inflation and interest on the housing market and, in particular, on institutions which specialize in housing finance. The experience of the United Kingdom is especially interesting in this regard since it has employed variable-rate mortgages on a large-scale basis within an institutio...

In Hong Kong, 35% of residential mortgage loans are adjustable rate mortgages with variable tenor (VRT). That is, with a change in interest rates, the loan adjusts its maturity and principal payment such that the monthly installment remains the same. In other words, instead of bearing a volatility on monthly payments as in a ®xed-tenor variable payment (VRP) mortgage, VRT mortgagors bear intere...

I compare the Bush-Paulson plan of intervention in secondary markets for mortgage-backed securities (MBS) with an alternative based on insuring mortgages directly. Fully insuring mortgages achieves the same bottom-line effect as buying all outstanding MBS but instantaneously with no upfront costs. A plan based on partial insurance can match most effects of a partial Paulson-style intervention. ...

A simulation method is employed to value Adustable Rate Mortgages, (ARMS). It is used to price two typical instruments: an ARM linked to a Treasury interest rate and an ARM linked to a "Cost of Funds" Index. Contractual provisions such as the margin over the index, caps and floors on the ARM's rate or on the monthly prepayment, reset frequency, and the "teaser" rate are examined for their influ...