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...

How is monetary policy transmitted through its impact on mortgage borrowings? How does this transmission mechanism depend on whether mortgages are fixed or floating rate? To address these questions, we add a model of financial institutions’ behaviour to a dynamic general equilibrium model in which some households face credit constraints. We use this model to analyse the real effects of inflatio...

An accurate and reliable model is critical for analyzing racial/ethnic and socioeconomic inequality in the spatial distribution of higher-priced/subprime mortgages. Employing a spatial error model, this research analyzes spatial autocorrelation in higher-priced mortgages in the Philadelphia and Chicago MSAs. The empirical results show that higher-priced mortgages occur disproportionately on tra...

Reverse mortgages are new financial products that allow the elders to convert their home equity into cash until they die. From the provider’s perspective, longevity risk and house price risk are the major risks involved with reverse mortgages. This paper proposes a securitization method to transfer the risks associated with reverse mortgages and focuses on tranching longevity and house price ri...

In many developed countries house prices have been rising rapidly, mortgage debt has been increasing and affordability has worsened. It is in this context that 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 in...

The current financial crisis: a brief reminder. As is well known, one of the main causes of the 2008 financial crisis is the fact that banks underestimated the risk of investing in high-risk mortgages. According to the news reports, this underestimation was caused by the banks “mixing” mortgages into complex financial instruments, which somehow lowered the estimated risks. The mixing means, cru...

This paper investigates the relationship between bankruptcy exemptions and the availability of credit for mortgage and home improvement loans. We develop a combined model of debtors’ decisions to file for bankruptcy and to default on their mortgages and show that the theory predicts positive relationships between both the homestead and personal property exemption levels and the probability of b...

The Canadian system for financing housing differs in a number of important respects from the U.S. system. Of greatest interest for this study is the absence of interest rate ceilings on deposits or mortgages and the fact that nearly all single-family mortgages are of a "roll-over" variety with interest rates fixed for only a fraction of the total amortization period, These two differences, as w...