Download or read book The Dynamics of Subprime Adjustable Rate Mortgage Default written by Hanming Fang and published by . This book was released on 2016 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a dynamic structural model of subprime adjustable-rate mortgage (ARM) borrowers making payment decisions, taking into account possible consequences of different degrees of delinquency from their lenders. We empirically implement the model using unique data sets that contain information on borrowers' mortgage payment history, their broad balance sheets, and lender responses. Our investigation of the factors that drive borrowers' decisions reveals that subprime ARMs are not all alike. For loans originated in 2004 and 2005, the interest rate resets associated with ARMs as well as the housing and labor market conditions were not as important in borrowers' delinquency decisions as in their decisions to pay off their loans. For loans originated in 2006, interest rate resets, housing price declines, and worsening labor market conditions all contributed importantly to their high delinquency rates. Counterfactual policy simulations reveal that even if the London Interbank Offered Rate (LIBOR) could be lowered to zero by aggressive traditional monetary policies, it would have a limited effect on reducing the delinquency rates. We find that automatic modification mortgages with cushions, under which the monthly payment or principal balance reductions are triggered only when housing price declines exceed a certain percentage, may result in a Pareto improvement, in that borrowers and lenders are both made better off than under the baseline, with lower delinquency and foreclosure rates. Our counterfactual analysis also suggests that limited commitment power on the part of the lenders regarding loan modification policies may be an important reason for the relatively low rate of modifications observed during the housing crisis.
Download or read book The Dynamics of Adjustable Rate Subprime Mortgage Default written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a dynamic structural model of subprime adjustable-rate mortgage (ARM) borrowers making payment decisions taking into account possible consequences of different degrees of delinquency from their lenders. We empirically implement the model using unique data sets that contain information on borrowers' mortgage payment history, their broad balance sheets, and lender responses. Our investigation of the factors that drive borrowers' decisions reveals that subprime ARMs are not all alike. For loans originated in 2004 and 2005, the interest rate resets associated with ARMs, as well as the housing and labor market conditions were not as important in borrowers' delinquency decisions as in their decisions to pay off their loans. For loans originated in 2006, interest rate resets, housing price declines, and worsening labor market conditions all contributed importantly to their high delinquency rates. Counterfactual policy simulations reveal that even if the Libor rate could be lowered to zero by aggressive traditional monetary policies, it would have a limited effect on reducing the delinquency rates. We find that automatic modification mortgage designs under which the monthly payment or the principal balance of the loans are automatically reduced when housing prices decline can be effective in reducing both delinquency and foreclosure. Importantly, we find that automatic modification mortgages with a cushion, under which the monthly payment or principal balance reductions are triggered only when housing price declines exceed a certain percentage may result in a Pareto improvement in that borrowers and lenders are both made better off than under the baseline, with a lower delinquency and foreclosure rates. Our counterfactual analysis also suggests that limited commitment power on the part of the lenders to loan modification policies may be an important reason for the relatively small rate of modifications observed during the housing crisis.
Download or read book The Dynamics of Adjustable rate Subprime Mortgage Default written by Hanming Fang and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Rise in Mortgage Defaults written by and published by DIANE Publishing. This book was released on with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Comparing Patterns of Default Among Prime and Subprime Mortgages written by Gene Amromin and published by DIANE Publishing. This book was released on 2010-01 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article compares default patterns among prime and subprime mortgages, analyzes the factors correlated with default, and examines how forecasts of defaults are affected by alternative assumptions about trends in home prices. The authors find that extremely pessimistic forecasts of home price appreciation could have generated predictions of subprime defaults that were closer to the actual default experience for loans originated in 2006 and 2007. However, for prime loans one would have also had to anticipate that defaults would become much more sensitive to home prices. Tables and graphs.
Download or read book The Past Present and Future of Subprime Mortgages written by Shane M. Sherlund and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Understanding the Securitization of Subprime Mortgage Credit written by Adam B. Ashcraft and published by DIANE Publishing. This book was released on 2010-03 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. Discusses the ways that market participants work to minimize these frictions and speculate on how this process broke down. Continues with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. Presents the key structural features of a typical subprime securitization, documents how rating agencies assign credit ratings to mortgage-backed securities, and outlines how these agencies monitor the performance of mortgage pools over time. The authors draw upon the example of a mortgage pool securitized by New Century Financial during 2006. Illustrations.
Download or read book Mortgage Contract Choice in Subprime Mortgage Markets written by Gregory E. Elliehausen and published by DIANE Publishing. This book was released on 2010 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Subprime Mortgage Credit Derivatives written by Laurie S. Goodman and published by John Wiley & Sons. This book was released on 2008-06-02 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mortgage credit derivatives are a risky business, especially of late. Written by an expert author team of UBS practitioners-Laurie Goodman, Shumin Li, Douglas Lucas, and Thomas Zimmerman-along with Frank Fabozzi of Yale University, Subprime Mortgage Credit Derivatives covers state-of-the-art instruments and strategies for managing a portfolio of mortgage credits in today's volatile climate. Divided into four parts, this book addresses a variety of important topics, including mortgage credit (non-agency, first and second lien), mortgage securitizations (alternate structures and subprime triggers), credit default swaps on mortgage securities (ABX, cash synthetic relationships, CDO credit default swaps), and much more. In addition, the authors outline the origins of the subprime crisis, showing how during the 2004-2006 period, as housing became less affordable, origination standards were stretched-and when home price appreciation then turned to home price depreciation, defaults and delinquencies rose across the board. The recent growth in subprime lending, along with a number of other industry factors, has made the demand for timely knowledge and solutions greater than ever before, and this guide contains the information financial professionals need to succeed in this challenging field.
Download or read book Effects of the Subprime Mortgage Crisis in New York City and Efforts to Help Struggling Homeowners written by United States. Congress. House. Committee on Financial Services. Subcommittee on Financial Institutions and Consumer Credit and published by . This book was released on 2008 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Subprime Mortgage Defaults written by James Martin and published by . This book was released on 2008 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent dramatic increases in the level of home mortgage defaults by subprime borrowers have focused intense regulator and media scrutiny upon the potential causes of the increases. In an analysis of causation, this paper examines the increased availability and usage of non-traditional mortgages such as adjustable rate mortgages and interest only loans by borrowers with weak credit. This paper also reviews the impact of decreasing real estate values on mortgage defaults. However, most significantly, this paper adds to the body of knowledge on subprime mortgage lending by evaluating the interrelationship of real estate values, borrower income, and income disparity in driving the increase in mortgage defaults. Our findings strongly support a conclusion that an American desire to "keep up with the Joneses" is a contributing cause to the increase in subprime mortgage defaults. Conspicuous consumption and competitive consumption are also linked to the concept of "keeping up with the Joneses."
Download or read book Subprime and Predatory Lending written by United States. Congress. House. Committee on Financial Services. Subcommittee on Financial Institutions and Consumer Credit and published by . This book was released on 2007 with total page 520 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Impact of the Subprime Mortgage Crisis on Community Health written by Christopher A. Mothorpe and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Loans originated to borrowers with lower incomes and/or lower credit scores are classified as subprime. The spatial distribution of subprime loans is alarmingly concentrated in minority-dominated and low-income areas. Beginning in mid 2006 the subprime mortgage market began to see elevated levels of delinquent and defaulted loans. The causes are many but generally traced to the beginning of the reset periods for adjustable rate mortgages and the evaporation of demand for securitized subprime mortgages. As delinquent and default rates in subprime mortgages rise, areas with a concentration of high-risk borrowers are at risk to decline. The decline can be measured across four different groups of factors that indicate the health of a community. The four groups are: physical, institutional, socioeconomic and the residential body. The residential body factor group refers to the citizens of a community and their civic involvement. The analysis uses binary logistic regression to identify communities that are commonly associated with subprime mortgage defaults. Subprime loans in the ten-county Atlanta Metropolitan Area are the focus of the study. The analysis treats each census tract in the ten counties as an individual community. The sample loans are geocoded to the census tract level allowing defaulted loans to be tied to communities and their characteristics. The data is collected from a variety of sources including the U.S. Census Bureau, the Atlanta Regional Commission and RR Donnelley s Credit Risk Management database. The results indicate that the probability of subprime mortgage defaults are associated with higher vacancy rates, population loss, declining property tax revenues, depreciating property values, and declining owner reinvestment in their properties. Potential spill over impacts to the community include higher crime rates, decreased school funding and degradation of public infrastructure.
Download or read book A Dynamic Model of Subprime Mortgage Default written by and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The increase in defaults in the subprime mortgage market is widely held to be one of the causes behind the recent financial turmoil. Key issues of policy concern include quantifying the role of various factors, such as home price declines and loosened underwriting standards, in the recent increase in subprime defaults and predicting the effects of various policy instruments designed to mitigate default. To address these questions, we estimate a dynamic structural model of subprime borrowers' default behavior. We prove that borrowers' time preference is identified in our model and propose an easily implementable semiparametric plug-in estimator. Our results show that principal writedowns have a significant effect on borrowers' default behavior and welfare: a uniform 10% reduction in outstanding mortgage balance for the pool of borrowers in our sample would reduce the overall default probability by 22%, and borrowers' average willingness to pay for the principal writedown would be $16,643.
Download or read book Some Loans are More Equal than Others written by Barrett A. Slade and published by . This book was released on 2001 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show how agency problems between lenders (principals) and third-party originators (agents) imply that TPO-originated loans are more likely to default than similar retail-originated loans. The nature of the agency problem is that TPOs are compensated for writing loans, but not completely held accountable for the subsequent performance of those loans. We find empirical support for the TPO/default prediction using individual fixed-rate subprime loans with first liens secured by residential real estate originated between 1 January 1996 and 31 December 1999. We find that apparently equal loans (similar ability-to-pay, option incentives, term, and age) can have unequal default probabilities. We also find that initially, the agency-cost risk was not priced. At first, the market did not recognize the higher channel-risk since TPO and retail loans received similar interest rates even though the TPO loans were more likely to default. We also show that this inefficiency was short-lived. As the difference in default rates became apparent, interest rates on TPO loans rose about 50 basis points above otherwise similar retail loans.
Download or read book Effects of Regulation on Prepayment and Default of Subprime Mortgages written by Jevgenijs Steinbuks and published by . This book was released on 2008 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of restrictions on prepayment penalties on prepayment and default termination of subprime mortgages from both a theoretical and empirical perspective. The theoretical results suggest that, if lenders substitute points for prepayment penalties, prepayment rates will rise and defaults fall. Consistent with predictions of theoretical model empirical results indicate that predatory lending laws lowered default rates and raised prepayment rates in the subprime market. Estimates from competing risks models of mortgage termination on 30-year fixed-rate subprime mortgage data suggest that, controlling for other factors, the estimated probabilities of prepayment are higher in the states that have introduced predatory lending laws and restricted prepayment penalties. Though no definite conclusions could be drawn regarding the effect of state laws on subprime defaults, there is some evidence that early defaults have decreased as the scope of regulation expanded.
Download or read book Strategies to Reduce Subprime Mortgage Default Rates written by Tracy L. Washington and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
