Mortgage Contracts and Underwater Default

IF 16.4 1区化学 Q1 CHEMISTRY, MULTIDISCIPLINARY

Accounts of Chemical Research Pub Date : 2024-04-11 DOI:10.1137/22m1498590

Yerkin Kitapbayev, Scott Robertson

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Abstract

SIAM Journal on Financial Mathematics, Volume 15, Issue 2, Page 315-359, June 2024.
Abstract.We analyze recently proposed mortgage contracts that aim to eliminate selective borrower default when the loan balance exceeds the house price (the “underwater” effect). We show contracts that automatically reduce the outstanding balance in the event of house price decline do eliminate selective default, but they may induce prepayment in low price states. However, low state prepayments vanish if the benefit from home ownership is sufficiently high. We also show that capital gain sharing features, such as prepayment penalties in high house price states, are ineffective as they virtually eliminate prepayment. For observed foreclosure costs, we find that contracts with automatic balance adjustments become preferable to the traditional fixed-rate contracts at mortgage rate spreads between 20–50 basis points. We obtain these results for perpetual versions of the contracts using an American options pricing methodology, in a continuous-time model with diffusive home prices. The contracts’ values and decision rules are associated with free boundary problems, which admit semiexplicit solutions.

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抵押合同和水下违约

SIAM 金融数学期刊》第 15 卷第 2 期第 315-359 页，2024 年 6 月。摘要：我们分析了最近提出的旨在消除借款人在贷款余额超过房价时选择性违约（"水下 "效应）的抵押贷款合同。我们的研究表明，在房价下跌时自动减少未偿余额的合同确实能消除选择性违约，但它们可能会在低价状态下诱发预付。然而，如果房屋所有权的收益足够高，低价状态下的预付就会消失。我们还表明，高房价州的预付惩罚等资本收益分享特征是无效的，因为它们几乎消除了预付。对于观察到的取消赎回权成本，我们发现当抵押贷款利率差在 20-50 个基点之间时，自动调整余额的合同比传统的固定利率合同更受欢迎。我们采用美式期权定价方法，在一个具有扩散性房价的连续时间模型中，对永久版本的合同得出了上述结果。合约的价值和决策规则与自由边界问题相关联，这些问题都有半明解。

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来源期刊

Accounts of Chemical Research 化学-化学综合

CiteScore

31.40

自引率

1.10%

发文量

312

审稿时长

2 months

期刊介绍： Accounts of Chemical Research presents short, concise and critical articles offering easy-to-read overviews of basic research and applications in all areas of chemistry and biochemistry. These short reviews focus on research from the author’s own laboratory and are designed to teach the reader about a research project. In addition, Accounts of Chemical Research publishes commentaries that give an informed opinion on a current research problem. Special Issues online are devoted to a single topic of unusual activity and significance. Accounts of Chemical Research replaces the traditional article abstract with an article "Conspectus." These entries synopsize the research affording the reader a closer look at the content and significance of an article. Through this provision of a more detailed description of the article contents, the Conspectus enhances the article's discoverability by search engines and the exposure for the research.