Types Of Mortgages Research Articles

Non-Ricardian Borrowers and Mortgage Type: Implications for Monetary Policy Leaning against the Wind

Abstract Leaning against the wind of credit booms is a monetary policy that is tighter than what is consistent with standard inflation targeting. This way the central bank tries to address excessive household debt. While the merits of such policy have been analysed, I argue that there are two dimensions that have been overlooked but are crucial: (i) ability of borrowers to freely adjust outstanding debt (refinancing) and (ii) dominant mortgage type in the economy (fixed or adjustable rate). I answer the research question using a standard macroeconomic model extended for the presence of borrowers who consume all their disposable income (hand-to-mouth) net of payments on long-term mortgage. I find that the optimal simple policy rule significantly depends on the ability to adjust debt and on mortgage type. Policy prescriptions based on models not accounting for these realistic features may lead to wrong monetary decisions.

VALUATION OF REVERSE MORTGAGES IN THE SPANISH MARKET FOR FOREIGN RESIDENTS

The continuous growth in life expectancy, besides to the difficult economic and financial situation of the public pension system in Spain, makes reverse mortgages an attractive solution for providing additional income to retirees. However, despite being almost 20 years old, the Spanish market remains immature. Consequently, providers face significant risks, due to factors such as interest rates, housing prices, and longevity. Numerous tourists visit Spain, and many retire there, obtaining legal residence. Therefore, lenders could be interested in marketing reverse mortgages to foreign residents. Nevertheless, the longevity risk faced by these lenders may differ depending on the nationality of the borrower, and profits and losses could vary. Consequently, we propose a methodology for comparing the pricing of reverse mortgages in Spain by considering differences in longevity risk. Specifically, we calculate the amount offered by three types of reverse mortgages to customers of different nationalities, genders, and ages with contracts made in Spain. Our conclusions are pertinent to Spanish lenders since the results indicate that, in general, a Spanish lender would assume a slightly larger risk when lending reverse mortgages to borrowers of the selected nationalities, regardless of other considerations, such as legal issues, which are not addressed in this article.

La hipoteca como título de ejecución

This scientific article covers an analysis of the mortgage, a legal institution contemplated in the Ecuadorian Civil Code, and that generally, and from its origins, has been conceived as an accessory obligation to the principal one, which gives it a guarantee nature in itself. itself, for the fulfillment of the principal obligation. The General Organic Code of Processes in Ecuador (COGEP) has recently conceived the mortgage as a foreclosure title, which becomes a controversial procedural treatment since there are several types of mortgage and said code does not make explicit which of them refers, nor how to proceed in such a case. It is then imposed, as a general objective of this research: Critically review the procedural treatment given to the mortgage as a foreclosure title by the COGEP in Ecuador and a methodology with a qualitative approach and scientific methods are applied, such as the bibliographic review, the historical-logical , the analytical-synthetic and the inductive, which lead to the conclusion that, according to the classification of the mortgage, as a real right of guarantee, open and closed; only the foreclosure procedural investiture would proceed for the closed mortgage. Conclusion whose support is provided by this scientific article.

Typical States and Their Risks for Mortgage Loans.

In this study, we construct a compartmental model that tracks the different states and their respective hazards for typical mortgage loans. We consider that an active mortgage loan could become delinquent in light of either common systemic risks or idiosyncratic risks in the job market. These two groups of employment-related perils jeopardize the sources of income underlying the mortgage monthly payments to lenders and could hurt the ability of mortgage loan borrowers to retire their debt. We also contemplate ongoing risks of a collapse in the housing market, which might transform the mortgage loan to be "underwater" and consequently diminish borrowers' incentives to service the outstanding balance. We develop the necessary derivations, illustrate the functionality of the model over several hypothetical simulations and sensitivity analyses, suggest variable estimation specific guidelines, conclude, and discuss potential extensions for the proposed model.

Foreclosure spillovers and individual well‐being: Evidence from the Great Recession

AbstractThis paper explores the causal effect of foreclosure on individual well‐being. Using plausibly exogenous variation in the timing of interest rate changes on different types of adjustable rate mortgages, we find that a 10% rise in foreclosures is associated with a 0.58% and 0.28% decline in current and expected future life satisfaction. These effects are primarily driven by the effects on local economic optimism. The results are consistent with models of spatial externalities where large‐scale shocks generate adverse effects on communities, not just individuals.

New Faces, New Neighbors? How Latino Population Growth and Lending Expansion Shapes the Neighborhood Racial and Ethnic Composition for White and Latino Homebuyers

Fueled by increased socioeconomic status (SES), geographic mobility, and access to lending, Latino home buying expanded during the recent housing boom. However, less is known about the types of neighborhoods Latino homebuyers accessed during this time. To address this gap, we explore how SES, mortgage type, and the metropolitan racial and ethnic context affected the racial and ethnic composition of neighborhoods for new white and Latino homeowners. We use data from the Home Mortgage Disclosure Act to explore these processes in 317 U.S. metropolitan areas from 2000 to 2010. Overall, we find evidence supporting both spatial assimilation theory and place stratification theory: while increased SES and loan amounts led to more white neighbors for both white and Latino homebuyers, subprime loans and the racial and ethnic context of metropolitan areas continue to constrain neighborhood attainment for Latinos.

Прогноз и перспектива развития российского рынка ипотеки

The study discusses the current state of the mortgage market in Russia, identifies its main trends and trends of further development based on the results of market analysis for 2018-2020. The dynamics of the volume of issued housing mortgage loans in Russia as a whole and in the context of federal districts, the dynamics of interest rates for various types of mortgages are presented, the trend of reduction of credit institutions providing mortgage loans is analyzed, and the rating of Russian banks in terms of the volume of mortgage loans is presented. A factor analysis of the volume dynamics of housing mortgage loans is carried out, and the preconditions for the growth of the Russian mortgage market are identified.

High Cost Lenders and the Geographic Concentration of Foreclosures

We define high cost lenders as lenders that issue a disproportionate number of high cost loans. We develop a shift-share measure to capture the market representation of these high cost lenders in housing submarkets. After conditioning on housing submarket fixed effects, origination year fixed effects and trends over origination years based on housing submarket attributes, the magnitude of the estimated relationship is very stable as detailed controls for borrower attributes, credit score and loan terms are added. The relationship between the representation of high cost lenders and foreclosure is broad based across borrowers and types of loans, but is strongest for loans originated by high cost lenders whether or not the loans themselves are high cost. We investigate three potential mechanisms: reverse causality where high cost lenders respond to an increase in demand from higher risk borrowers, the types of mortgages issued when high cost lenders increase their market presence, and the behavior of loan servicers when a cohort of loans contains a large number of loans issued by high cost lenders. While we do not have direct information on loan servicers, our evidence points towards foreclosure decisions during the crisis as the primary mechanism behind our findings. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Reverse Mortgage Risks. Time Evolution of VaR in Lump-Sum Solutions

In this study, we analyzed the risk faced by the reverse mortgage provider in the case of the lump-sum solution, which is increasingly becoming one of the most popular types of reverse mortgages. The risk faced by the mortgage provider was estimated by means of a value at risk (VaR) procedure that involves a Monte Carlo simulation method and an ARMA-EGARCH assumption for modeling house price returns in the United Kingdom from 1952 to 2019. The results showed that the reverse mortgage provider faced higher risk and consequently needed to allocate more funds to meet its regulatory capital requirements in the case of relatively young borrowers, especially when they reached their life expectancy and had high roll-up rates. The risk was even higher in the case of the female population. Furthermore, care must be taken when the rental yield rate is higher than the risk-free rate, as is currently the case, as the value of the no-negative-equity guarantee (NNEG) is relatively high and results in higher value at risk (VaR) and expected shortfall (ES) values. These results have important implications in terms of policy decision making when determining the countercyclical buffer for reverse mortgages in Basel III, as well as from a managerial perspective when determining the economic capital needed to support the risk taken by the lender.

Interest-only mortgages and speculation in hot housing markets

Even as housing markets have temporarily shut down across the U.S. during the Covid-19 pandemic, housing remains a key sector that contributes disproportionately to fluctuations in overall economic activity and that will likely play an important role as the economy reopens. Interest in this market among research economists and policymakers intensified after the exceptional boom and bust in housing between 2003 and 2008. In this Chicago Fed Letter, we describe research in Barlevy and Fisher (2020)1 that examined patterns in the kinds of mortgages homebuyers took out in different cities during this episode. Recently, some have argued that the same kinds of mortgages that were used in the hottest real estate markets back then were beginning to reappear before the pandemic broke out, at least in some markets. These types of mortgages may also be more appealing in the near term for households who find themselves financially constrained in the wake of the pandemic.

Assessment of insolvency issues for the mortgage originator and trustee-issuer in securitisation programs

In a typical mortgage securitisation program in Australia, an originating bank or independent mortgage provider ('IMP')' with a substantial pool of residential mortgage loans, sells or transfers a portfolio of its mortgages to a special purpose vehicle ('SPV'). This SPV is a trust, established separately from the originating bank or IMP. The transfer is intended to separate the mortgages from risks associated with the originator. For this reason, the originating bank must structure the transfer so that it constitutes a 'true sale', that is sufficient under insolvency law to remove the mortgages from the originating bank's asset pool.

The Supply Side of Household Finance

We propose a new, data-based test for the presence of biased financial advice when households choose between fixed and adjustable rate mortgages. If households are wary, the relative cost of the two types should be a sufficient statistic for a household contract choice: the attributes of the bank that makes the loan should play no role. If households rely on banks' advice to guide their choice, banks may be tempted to bias their counsel to their own advantage. In this case bank-specific supply characteristics will play a role in the household's choice above any role they play through relative prices. Testing this hypothesis on a sample of 1.6 million mortgages originated in Italy between 2004 and 2010, we find that the choice between adjustable and fixed rates is significantly affected by change in banks' supply factors, especially in periods during which banks do not change the relative price of the two mortgage types. This supports the view that banks are able to affect customers' mortgage choices not only by pricing but also through an advice channel.

Underwriting Limits and Optimal Leverage in Commercial Real Estate

Risk-averse commercial mortgage lenders follow an underwriting policy with strict limits based on the property’s value and cash flow. A borrower then chooses the initial loan amount and amortization that fit into these requirements and maximizes the investment’s net present value. For an underwriting policy based on typical mortgage ratios, this optimization problem has a closed-form solution. Applying the formula to loan business data from life insurance companies, fluctuations in market parameters and cash flow-based policy limits can explain the major part of the observed variability in initial leverage. This analysis gives further support to observations that initial leverage is endogenous to the underwriting process, while cash flow-based and forward-looking measures are of primary importance in commercial loan risk management.

The Transmission of an Interest Rate Shock, Standard Mitigants and Household Behavior

We analyze the transmission of an interest rate shock to households in the context of a stress-test module. We examin standard mitigants, such as delays due to a future interest-rate-reset-date, tax deduction of the interest paid on mortgages, the amortization of different mortgage types and conjunctural factors. We also include the possibility of behavioral responses, where households can alleviate the effect of a shock by reducing debt using voluntary repayments. We estimate a Cragg log-normal hurdle model on loan-level data for the Dutch mortgage market. We simulate debt 30 years into the future under different scenarios for the development of the interest rate and simulating both contractual and voluntary amortization. This study finds a significant dampening role of voluntary repayments on the effects of an interest rate shock.

Macroeconomic and distributional effects of mortgage guarantee programs for the poor

Government-driven mortgage guarantee programs (for example, loans insured through the Federal Housing Administration, the Department of Veterans Affairs, and the Rural Housing Service) aim to help financially disadvantaged households buy and own their houses. This study analyzes the macroeconomic and distributional effects of these government programs. We propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees. Households that take out mortgages with government guarantees pay an up-front insurance premium, while those that choose mortgages without guarantees face borrowing limits. Our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare, mainly due to endogenous changes in mortgage interest rates and tax burdens, rather than in housing prices. The welfare implications are different across households, depending on their financial status.

An Analysis of Rural Land Mortgage Financing Model in Western China—Based on the Study of Two Typical Mortgage Pilot in Ningxia

At present, in the western region is to develop agricultural land mortgage pilot work. How to perfect the existing mortgage financing model to solve the problem of financing difficulty become crucial. This article selected two typical cases of Ningxia, and analyzed their difference from the change pattern of system, mortgage way, risk prevention mechanism, financing object and loan amount. From the comparative analysis of the existing models, the existing land mortgage legal system, the registration of rural land confirmation and the risk prevention mechanism are found to be not comprehensive. Finally, it summarizes some Suggestions to improve the rural land mortgage financing model in the western region to promote rural economic development.

Well-Being and Large Financial Shocks: Evidence from Foreclosures between 2008-2014

Abstract This paper explores the causal effect of foreclosure on individual well-being and social capital. Using plausibly exogenous variation in the timing of interest rate changes on different types of adjustable rate mortgages (ARMs), we find that a 10% rise in foreclosures is associated with a 0.58% and 0.28% decline in current and expected future life satisfaction. These effects are primarily driven by the effects on local optimism and social capital. The results are consistent with models of spatial externalities where large-scale shocks generate adverse effects on communities, not just individuals.

Deficiency Judgments as a Mortgage Pricing Factor

AbstractThe subject of the deficiency judgments has been poorly examined due to a lack of relevant data and the complexity of the issue. Some comprehensive studies have explored whether allowing deficiency judgments decreases the likelihood of strategic defaults in the U. S. mortgage market. Little, however, has been done to determine whether there is any direct correlation between legal standing allowing recourse and loan pricing. Hence, additional work regarding this subject is needed.This study seeks to fill this gap by exploring the impact of allowing deficiency judgments on mortgage pricing policy in various U. S. states. Seven distinctive mortgage types in two groups of states were compared. We conclude that there is no statistically significant difference between recourse and non-recourse states in terms of mortgage pricing, regardless of mortgage type.

The Consumer Spending Response to Mortgage Resets: Microdata on Monetary Policy

In this report, we examine how a sample of US homeowners changed their credit card spending in response to a predictable drop in their mortgage payment driven by the Federal Reserve’s low interest rate policy that followed the Great Recession. Using a de-identified sample of Chase customers who had a hybrid adjustable-rate mortgages (ARM) and a Chase credit card, we analyze changes in credit card spending and revolving balance leading up to and after mortgage reset. We organize our results into four findings. First, forty-four percent of the homeowners in our sample experienced a large drop in their hybrid ARM payment at reset, which on average represented over 5 percent of their monthly income. Second, homeowners increased their spending by 9 percent in advance of the anticipated drop in their mortgage payments and by 15 percent after reset, despite a considerable drop in housing wealth. Third, homeowners used credit card borrowing to finance 21 percent of their pre-reset anticipatory spending increase, and post–reset they further increased their revolving balances. Over the full two year period, their total spending increase exceeded their mortgage-related savings by 4 percent. Fourth, Homeowners used the savings from lower hybrid ARM payments to make more purchases across all spending categories, notably home improvements and healthcare. Overall, we find that in a declining interest rate environment, the income channel that transmits interest rate policy to homeowners with ARMs is automatic, the consumer response is considerable, and that there are both anticipatory and contemporaneous increases in consumption. Additional research is needed to understand if the income channel also has the intended and expected contractionary effects on consumer spending as policy rates move higher. Armed with a full understanding, housing policy makers could evaluate the policies that influence which type of mortgage (fixed-rate or variable-rate) borrowers choose and should consider the effects these policies will have on the ability of monetary policy to impact personal consumption through the business cycle.

Financial literacy: A barrier to home ownership for the young?

The decision to buy a home is one of the most important choices faced by a household. Most young households who purchase a home do so using a mortgage. But mortgages are complex financial instruments and this complexity may be a barrier to less sophisticated households becoming homeowners. Using survey data from a sample of English and Welsh households we measure household financial literacy related to mortgages, including concepts such as loan duration, interest compounding and amortization. We find that in the population mortgage financial literacy is generally low and among renters mortgage financial literacy is substantially worse than among homeowners. Econometric estimates show mortgage financial literacy predicts home ownership for younger, but not for older households. Financial literacy also affects the type of mortgage and leverage position of younger households. Young homeowners with poorer financial literacy take on larger mortgage debts and are more likely to use alternative mortgage products.