Inflation risk, payment tilt, and the design of partially indexed affordable mortgages

Article Abstract:

A new type of mortgage called a partially indexed affordable mortgage or hybrid PLAM, allows inflation risks to be spread between borrower and lender, together with a broad range of repayment schedules. Hybrid PLAMs offer advantages both to people taking out mortgages on commercial property, and to firt-time purchasers, in addition to financial intermediaries. The design of mortgages has thus been advanced through incorporating these two parameters in one equation, and the model could be developed through adding interest rate risk as a determinant.

Real estate industry

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Lender forbearance: evidence from mortgage delinquency patterns

Article Abstract:

The length of time taken by lenders to foreclose delinquent home loans is linked to the equity strength of the borrower, and how far that is weakened by the loan being unpaid. Loans tend to be foreclosed later if there is government involvement through loan programs. Conditions in local markets, such as unemployment, and interest rates are also important, with interest rate changes affecting fixed rate mortgage foreclosures. The study used Accelerated Failure Time methods, and examined both conventional and Veteran's Administration mortgages.

Bad debts

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Self-selection in the fixed-rate mortgage market

Article Abstract:

Borrower's choice in the fixed-rate mortgage market is analyzed through the prepayment option approach. Lender and borrower information about the borrower's use of the mortgaged property are assumed to be unequal. Results show that from a financial perspective, borrowers are found to be indifferent regarding choice of contract regarding rate-discount points combination. It also indicates that borrowers that expect returns within shorter times should not choose mortgages with higher interest rates and lower discount points.

Consumer preferences, Selectivity (Psychology)

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