Abstract
The main determination of mortgage risk factors is undoubtedly related to the housing price .In this article, we employ threshold GARCH process in practical analysis, to capture the house price dynamic on the logarithm return. This study also estimates the housing price volatility in the presence of stationary variance property from the threshold GARCH model and its implied volatility can serve as a benchmark for the pricing reverse mortgage derivatives. Our results have important implications for hedging risk of reverse mortgages. To our best knowledge, this paper is the first study employing Poisson Regression approach to look at the housing prices risk of reverse mortgage incorporated with its number of loans.
Highlights
After 2008 financial crisis, in circumstances where a loan balance is greater than the actual property value, the Federal Housing Administration (FHA) insures the lender against any shortfall
HECM is the generally applied acronym for a Home Equity Conversion Mortgage, which stands for a reverse mortgage, created by and regulated by the U.S Government Department of Housing and Urban Development (HUD)
A HECM is a loan issued by a private bank or insurance corporation, but insured by the Federal Housing Administration, which is part of HUD
Summary
After 2008 financial crisis, in circumstances where a loan balance is greater than the actual property value, the Federal Housing Administration (FHA) insures the lender against any shortfall. The insurance purchased by this fee protects the mortgage borrower have two flaws: (1) if the home’s value upon sales is not enough to cover the loan balance; and (2) if and when the lender is unable to make a payment. In the former case, the government insurance fund would pay off the remaining balance. The existing literatures on risk analysis about the mortgages area have three brief flaws
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