Explicit tests of contingent claims models of mortgage default

This paper provides explicit and powerful tests of contingent claims approaches to modeling mortgage default. We investigate a model of frictionless default (i.e., one in which transactions costs, reputation costs, and moving costs play no role) and analyze its implications-the relationship between equity and default, the timing of default, its dependence upon initial conditions, and the severity of losses. Absent transactions costs and other market imperfections, economic theory makes well-defined predictions about these various outcomes.The empirical analysis is based upon two particularly rich bodies of micro data: one indicating the default and loss experience of all mortgages purchased by the Federal Home Mortgage Corporation (Freddie Mac), and a large sample of all repeat sales of single family houses whose mortgages were purchased by Freddie Mac since 1976.     

美国次按问题的实质

次按危机愈演愈烈,给全球金融市场和大型金融机构造成重大损失。该文深入分析了次按危机的深层影响,认为次按危机引致的信贷紧缩已经演变为消费紧缩,打破了美国长期以来借钱消费的兴旺周期,美国过往的消费模式从而经济增长模式已难以为继;次贷危机不仅直接打击美国经济,同时也拖累世界经济增长。文章认为如何解决美国经济的结构性问题以及这个过程会对世界经济产生何种影响,才是解决美国次按问题的实质。     

我国城镇住房反向抵押贷款的可行性研究

本课题运用了理论分析和演绎推理相结合的方法,在此基础上,进行大量深入调研及统计资料分析反向抵押贷款在我国城镇实施既是必要又是可行的.认为反向抵押贷款是涉及到房地产经济、社会保障、金融保险、制度经济学等学科的理论与思想方法,是对这些相关理论以反向抵押贷款为纽带的重新组合与融汇;反向抵押贷款将金融、保险、投资等不同金融工具相联接并有机融汇,形成了新的金融保险产品,实现金融保险工具创新,为我国老龄化问题提供一条崭新的思路.其研究成果具有较重要的理论价值、应用价值和现实意义.     

Determinants of the ARM Share of FHA and Conventional Lending

Loan-choice research has generally examined the determinants of fixed-rate mortgage (FRM) versus ARM lending in the single-family conventional market. Little attention has been paid to the significant differences in ARM lending between the GSE conforming and jumbo markets, as well as differences in the FHA market. For example, the ARM share of jumbo originations is generally two to three times that of the conforming market. This article extends past analysis by examining the determinants of ARM market share in the conventional conforming, jumbo, and FHA markets. Mortgage-pricing variables and the slope of the Treasury yield curve, a proxy for expectations of the time path of ARM indexes, were generally found to be significant. Further, the geographic shift in FHA lending toward the California market since 1992 was found to explain a significant part of the increase in the ARM share of FHA originations during the mid-1990s.     

Martingales and efficient forecasts of effective mortgage rates

Economic theory and empirical evidence indicate that the optimal near-term forecast of a long-term rate is (approximately) today's rate; the no-change model should provide excellent near-term forecasts of a long-term rate. This article estimates the longest forecast horizon over which no-change predictions of each of three mortgage-related interest rates pass a series of quality tests. The empirical results reject the optimality of no-change predictions of the one-year Treasury bill rate for all forecast horizons. Since October 1979, the tests support the hypothesis that no-change predictions of the 30-year conventional home mortgage and GNMA rates are optimal for forecast horizons of up to three-quarters-ahead.     

Home mortgage debt financing of nonhousing investments

Home mortgage debt is decomposed into a component that represents debt demand, derived from housing demand and a residual excess demand. This excess demand derives principally from the demand for nonhousing assets. An empirical model of the determinants of the demand for excess debt is specified and estimated using databases from the 1983 and 1986 Surveys of Consumer Finance. The estimations focus on evidence of linkages between debt demand and household preferences for illiquid risky assets, and on the substitutability of personal debt for mortgage debt. Positive linkages are found between household choices of investments in vacation homes, investment real estate, and closely held business and the demand for excess debt. However, personal debt and mortgage debt appear to have largely separate financing roles.     

An empirical analysis of property appraisal and mortgage redlining

The recent literature advances a hypothesis that addresses the possibility of mortgage redlining caused by a dynamic information externality in property appraisals and mortgage lending. In particular, Lang and Nakamura (1993) hypothesize that because property appraisals depend on past transactions, appraisals in neighborhoods where transactions were infrequent tend to be less precise. The greater uncertainty about house valuation in such neighborhoods can lead mortgage lenders to impose stringent requirements on borrowers. Lang and Nakamura's article, like most economic analysis of property appraisals, is theoretical. Using a sample of mortgages purchased by Fannie Mae, we present preliminary research results that cast doubt on appraisal behavioral rules such as weighted averages or backward-looking expectations on which Lang and Nakamura and other theoretical studies are based. Instead, our results refocus attention on the moral hazard issues of appraisal. We find that in more than 80 percent of the cases, the appraisal is between 0 and 5 percent above the transaction purchase price, in only 5 percent of the cases is the appraisal lower, and in 30 percent of the cases, the appraisal and transaction prices are identical. It would take a strong statistical model to generate such occurrences. Our resutls also indicate that appraisal outcomes are used as a risk factor with different weights for loans with different characteristics (loan-to-value ratios and house prices). The results suggest that more empirical investigation of appraisal practices be conducted to verify the validity of conventional wisdom embedded in theoretical studies, and we offer an econometric framework toward this end.     

On the valuation of reverse mortgage insurance

This article presents a closed-form formula for calculating the loan-to-value (LTV) ratio in an adjusted-rate reverse mortgage (RM) with a lump sum payment. Previous literatures consider the pricing of RM in a constant interest rate assumption and price it on fixed-rate loans. This paper successfully considers the dynamic of interest rate and the adjustable-rate RM simultaneously. This paper also considers the housing price shock into the valuation model. Assuming that house prices follow a jump diffusion process with a stochastic interest rate and that the loan interest rate is adjusted instantaneously according to the short rate, we demonstrate that the LTV ratio is independent of the term structure of interest rates. This argument holds even when housing prices follow a general process: an exponential Lévy process. In addition, the HECM (Home Equity Conversion Mortgage) program may be not sustainable, especially for a higher level of housing price volatility. Finally, when the loan interest rate is adjusted periodically according to the LIBOR rate, our finding reveals that the LTV ratio is insensitive to the parameters characterizing the CIR model.     

State ownership, the institutional environment, and auditor choice: Evidence from China

This paper finds that compared with non-state-owned firms, Chinese state-owned enterprises controlled by province, city, and county governments (local SOEs) are more likely to hire small auditors within the same region (small local auditors). In regions with less developed institutions, SOEs controlled by central government (central SOEs) also have such a tendency. However, the tendency of local and central SOEs to hire small local auditors is attenuated as the institutions develop. This auditor choice pattern is likely to be explained by SOEs’ lack of demand for large or non-local auditors, small local auditors’ superior local knowledge, and SOEs’ collusion incentives.     

Discrimination in Lending: Theory and Evidence

Using a general equilibrium model of credit market discrimination, I find that both taste-based discrimination and statistical discrimination have similar predictions for the intergroup differences in loan terms. The commonly held view has been that if taste-based discrimination exists, loans approved to minority borrowers will have higher expected profitability than those to majorities with comparable credit background. I show that the validity of this profitability view depends crucially on how expected loan profitability is measured. I also show that taste-based discrimination must exist if loans to minority borrowers have higher expected rates of return or lower expected rates of default loss than those to majorities with the same exogenous characteristics observed by lender at the time of loan originations. My analysis suggests that the valid method to test for taste-based discrimination should be reduced-form regressions. Empirically, I fail to find supporting evidence for the existence of taste-based discrimination.     

Housing and the mortgage securities markets: Review,outlook, and policy recommendations

During the 1980s, strong demographic demand for housing created a bulging need for mortgage credit. The mortgage market has creatively accommodated this need through extensive securitization of residential mortgages. This process greatly facilitated the financing of housing demand. During this decade, however, the scheme of funding long-term mortgages with short-term deposits bankrupted savings institutions. A gigantic federal bailout for thrifts was finally required. In the 1990s, the weakening demographics and the resulting reduction in the demand for mortgage credit afford the federal government opportunities to reformulate its housing policies in terms of limiting federal insurance on consumer deposits, phasing out income tax deductibility of mortgage interest, and ensuring capital adequacy at federally sponsored credit agencies.     

Choosing between fixed-and adjustable-rate mortgages: The case of commercial mortgages

This article reports on the determinants of the ARM choice for commercial real estate projects. The theoretical literature suggests that commercial real estate projects are more likely to be financed with an adjustable-rate mortgage (ARM) if the project's income stream or value is expected to rise with inflation over time. The empirical model estimated is a structural probit probability model of the ARM choice. Our results demonstrate that commercial borrowers typically place great emphasis on relative interest-rate differentials when deciding which mortgage is best. We also find that commercial mortgage borrowers will ordinarily be reluctant to issue an ARM when the fixed interest rate is low.     

Adjustable-rate mortgages,household mobility,and homeownership: A simulation study

A semi-Markov model is used to evaluate the effects of adjustable-rate mortgages on housing tenure decisions of recent movers and steady-state homeownership rates. Simulations were undertaken based on household data from the Panel Study of Income Dynamics together with information on FRM-ARM rate spreads and Treasury yield curves. Results suggest that under most interest rate patterns that prevailed in the 1980s, ARMS had little effect on the relative cost of owning to renting and, as a result, had little effect on mover tenure choice and home sales. Moreover, despite some minor projected increase in the percentage of movers that choose to own when ARMs are available, ARM effects on steady-state owner-occupancy rates appear to be largely mitigated by an ARM-induced tilt toward a relatively more mobile steady-state pool of owner-occupiers.     

Bias in estimates of discrimination and default in mortgage lending: The effects of simultaneity and self-selection

The common practices of estimating single-equation models of mortgage rejection to test for discrimination in mortgage markets or single-equation ex ante mortgage default equations to validate underwriting criteria produce biased and inconsistent parameter estimates. This is due to problems of simultaneous equations bias which arise because, in a world of imperfect information, mortgage terms are not exogenous to the rejection or default decision. In addition, mortgage default estimates are also subject to selection bias. Monte Carlo experiments are used to study the nature and extent of likely bias in single-equation estimation results. We find that rejection equation estimates indicate discrimination when none exists and that estimated coefficients of mortgage terms, such as the loan-to-value ratio, are also subject to significant bias in both rejection and default equations.     

Fiscal year-end choice: determinants and dynamics

The international diversity of firms' fiscal year-end is relatively unknown. However, this diversity has practical implications for both accounting research and business comparability. In this study, we examine the backgrounds of the diversity. We found that differences in tiny, supposedly unimportant details in national legislation on fiscal year-end have a much stronger impact on fiscal year-end choice than the generally assumed cause of seasonality. In the last decade of international harmonization, we found only a few instances of fiscal year-end changes motivated by enhancing comparability. Worldwide, a weak drift towards December was found.     

Fixed versus variable rate financing: The influence of borrower,lender, and market characteristics

Previous research has analyzed the problem faced by borrowers who must choose between fixed rate and variable rate loans when each loan carries different cost and risk characteristics and the borrowers face various income and employment prospects. In addition, the existing literature contains theoretical and empirical studies of how lenders react when given the ability to offer both fixed and variable rate financing. This article unifies the two strands of research to develop and test a model of the equilibrium proportion of variable rate lending. Results indicate that factors related to borrower, lender, and market characteristics are significant determinants of the equilibrium proportion of variable rate credit originated.     

Appraisal Quality and Residential Mortgage Default: Evidence from Alaska

We empirically examine the effect of appraisal quality on subsequent mortgage loan performance using data from the high volatility housing market of Alaska in the 1980s. We develop measures of appraisal quality by computing the residual between a hedonic estimate of house value using available information from other appraisals compared to actual ex ante appraised value. We then estimate proportional hazard models of mortgage default and find that several measures of appraisal quality, particularly appraised value in excess of hedonic estimates, are significantly related to default risk. Using valuations subsequent to loan default, we are also able to evaluate how well house price indices perform in terms of estimating current loan-to-value and offer some additional evidence on the controversy over the role of net equity versus trigger events as determinants of mortgage default. We also show that defaults are related to ex ante measures of housing market conditions, with additional implications for underwriting policies and the current industry trend away from traditional appraisal and toward automated valuation.     

Mortgage Choice in the Euro Area: Macroeconomic Determinants and the Effect of Monetary Policy on Debt Burdens

This paper provides novel evidence on the role of the macroeconomic environment for households’ choice between fixed‐interest‐rate and adjustable‐interest‐rate mortgages (ARMs) in the euro area. We find that relatively more ARMs are taken out when economic growth is strong, the interest rate spread is high, or unemployment shows low volatility. A simulation exercise shows that a reduction in mortgage rates as witnessed during the monetary easing in the course of the global financial crisis produces a substantial decline in debt burdens among mortgage‐holding households, especially in countries where households have higher debt burdens and a larger share of ARMs.     

Determinants of Swap Spreads in a Developing Financial Market: Evidence from Finland

This paper presents empirical evidence on the determinants of swap spreads in Finland using four years of data. Spreads exhibit a significant negative relationship with the amount of fixed rate deposits with banks, which reflects the importance of banks in the Finnish capital markets. Spreads are positively linked to business cycle and market risk factors such as the slope of the yield curve and the volatility of interest rates. The influence of hedging costs has become increasingly important over time, especially in longer dated swaps. A relationship is also observed between swap spreads and the external value of the currency.     

Accounting for government grants: Standard-setting and accounting choice

This paper provides evidence on several matters relating to accounting for government grants under International Financial Reporting Standards (IFRS). Focusing on grants related to assets, we trace the development of International Accounting Standard (IAS) 20, outline some of the problems of current accounting practice, and suggest why these have not been addressed by the standard-setter. Then, by hand-collecting data relating to 559 firms from 15 countries, we empirically analyze several issues. We show that asset grants are economically important for some firms and that the frequency of grants is significantly different across the countries. For the non-financial firms in our sample, we identify the grant-related accounting policy choice: a firm can either show the grant as deferred income or net it against the asset. The options are roughly equally popular overall but the firm’s country of domicile is strongly associated with the choice. Further, as a key element of disclosure quality for this topic, we investigate whether or not the balance sheet-related numbers relating to grants are disclosed, finding that many firms do not disclose them. Disclosure quality is better for firms which use the ‘deferred income’ option, and it is also better in countries where a higher proportion of firms has received government grants. International differences and poor disclosure are detrimental to international comparisons, so we conclude that the policy choice should be removed from the accounting standard.