Signaling-Screening Equilibrium in the Mortgage Market

The signaling model of Spence (1973a) and the screening model of Rothchild and Stiglitz (1976) have been separately used to explain economic phenomena when there is asymmetric information. In the real world, however, situations of asymmetric information often simultaneously involve signaling and screening. In this paper, we combine signaling and screening mechanisms and demonstrate a signaling-screening separating equilibrium. We present the analysis within the framework of mortgage markets. Borrowers signal their default risk types to lenders by acquiring different credit records. This partially separates borrowers into subsets. Lenders screen each subset by offering menus of mortgage loan contracts. Borrowers, then, self-select by choosing particular contracts from the menu. We show the conditions under which the signaling-screening equilibrium is Pareto superior to a screening-only equilibrium.     

Valuing Mortgage Insurance Contracts in Emerging Market Economies

We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. As an application, we price a typical Serbian government-backed mortgage insurance contract.     

The Neighborhood Distribution of Subprime Mortgage Lending

Subprime lending in the residential mortgage market, characterized by relatively high credit risk and interest rates or fees, has developed over the past decade into a prominent segment of the market (Temkin, 2000). Recent research indicates that there is geographical concentration of subprime mortgages in Census tracts where there are high concentrations of low-income and minority households. The growth in subprime lending represents an expansion in the supply of mortgage credit among households who do not meet prime market underwriting standards. Nonetheless, its apparent concentration in minority and lower income neighborhoods has generated concerns that these households may not be obtaining equal opportunity in the prime mortgage market. Such lending may undermine revitalization to the extent that it is associated with so-called predatory practices.     

抵押与抵押替代：基于信息约束的农户信贷产品变革

传统的农户信贷产品因为逆向选择和道德风险原因,可能导致市场萎缩,农户因可得的金融资源受到限制而产生严重的福利损失。从农户信贷市场中的信息约束出发,通过比较传统农户信贷、农地抵押和小额信贷三种农户信贷产品,可以寻找到信贷产品的有效变革路径。     

House‐Price Expectations,Alternative Mortgage Products,and Default

The goal of this paper is to better understand the forces that spurred use of alternative mortgages during the housing boom. A theoretical model shows that, when future house‐price expectations become more favorable, reducing default concerns, mortgage choices shift toward alternative products, which are characterized by backloading of payments. The empirical work confirms this prediction by showing that an increase in past house‐price appreciation, which captures more favorable expectations for the future, raises the market share of alternative mortgages. In addition, the paper tests the fundamental presumption that backloaded mortgages are more likely to default, finding support for this view.     

住房反向抵押贷款的国际借鉴与实践

随着我国老龄化社会程度的加重,社会保障压力不容回避.而市场经济发达国家通过住房反向抵押贷款,实现了以房养老,既提高了老年人的生活质量,又减轻了国家社会保障压力.因此,在我国推出住房反向抵押贷款,对于构建和谐社会有着重要的意义.     

Mortgage Default during the U.S. Mortgage Crisis

Which theory can quantitatively explain the rise in mortgage defaults during the U.S. mortgage crisis? This paper finds that the double‐trigger hypothesis, which attributes mortgage default to the joint occurrence of negative equity and a life event such as unemployment, is consistent with the evidence. By contrast, a traditional frictionless default model strongly overpredicts the increase in default rates. This paper provides microfoundations for double‐trigger behavior in a model where unemployment causes liquidity problems for the borrower. This framework implies that mortgage crises may be mitigated at a lower cost by bailing out borrowers instead of lenders.     

Ratings Competition in the CMBS Market

We consider the relationship between competition among credit rating agencies and the ratings of commercial mortgage‐backed securities (CMBS) using data from 2002 to 2007. We characterize competition using Fitch's aggregate share of CMBS ratings and a measure of Fitch's deal‐specific market share constructed as the probability of Fitch being hired for a specific transaction. Controlling for deal characteristics, we find that subordination levels were lower when Fitch's aggregate and deal‐specific market shares were higher, which suggests that ratings competition yielded less stringent ratings when Fitch was a more significant competitor, although this effect dissipates when Fitch's market shares were high.     

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.     

我国证券市场开设国际板存在的障碍及解决对策

我国在世界经济地位日益提升,且证券市场国际化逐渐加快,因此,我国现在急需建成一个国际金融中心。国际金融中心的标志之一就是交易市场向国际开放,而国际板的开设是国际金融中心建设的重要一步。本文阐述了我国证券市场开设国际板所引发的主要争论,包括:发行之争;利弊之争;时机之辩。分析了我国开设国际板急需解决的三个主要障碍,即各方利益均衡问题、避免拉低我国股票市场的估值、国际板在我国良好运行等,并给出问题解决的对策:分步推行国际板;完善我国证券市场制度建设;提高监管和服务水平。     

Optimal Mortgage Refinancing: A Closed‐Form Solution

We derive the first closed‐form optimal refinancing rule: refinance when the current mortgage interest rate falls below the original rate by at least In this formula W(.) is (the principal branch of) the Lambert W‐function, where ρ is the real discount rate, λ is the expected real rate of exogenous mortgage repayment, σ is the standard deviation of the mortgage rate, is the ratio of the tax‐adjusted refinancing cost and the remaining mortgage value, and τ is the marginal tax rate. This expression is derived by solving a tractable class of refinancing problems. Our quantitative results closely match those reported by researchers using numerical methods.     

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays

The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and home equity lines of credit at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage nonrecourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for housing and nonhousing debts. Our analysis highlights the interconnectedness of debt repayment decisions.     

Credit Scoring and Mortgage Securitization: Implications for Mortgage Rates and Credit Availability

This article develops a model of the interactions between borrowers, originators, and a securitizer in primary and secondary mortgage markets. In the secondary market, the securitizer adds liquidity and plays a strategic game with mortgage originators. The securitizer sets the price at which it will purchase mortgages and the credit-score standard that qualifies a mortgage for purchase. We investigate two potential links between securitization and mortgage rates. First, we analyze whether a portion of the liquidity premium gets passed on to borrowers in the form of a lower mortgage rate. Somewhat surprisingly, we find very plausible conditions under which securitization fails to lower the mortgage rate. Second, and consistent with recent empirical results, we derive an inverse correlation between the volume of securitization and mortgage rates. However, the causation is reversed from the standard rendering. In our model, a decline in the mortgage rate causes increased securitization rather than the other way around.     

Institutional Differences and International Private Debt Markets: A Test Using Mandatory IFRS Adoption

Institutional differences between countries result in additional information risks between borrowers and lenders in cross‐border private loans. This study examines the effect of these information risks on the structure of optimal debt contracts in international (cross‐border) versus domestic private debt markets. Using mandatory IFRS adoption as an indicator for institutional changes that reduced differences between countries, I compare attributes of international versus domestic loans before and after IFRS adoption. I find that, in the pre‐IFRS period, international loans are associated with a higher credit spread, a weaker relationship between the bank and the borrower, a more diffuse loan syndicate, and less reliance on accounting‐based covenants than domestic loans. These results are consistent with incremental information risks in international debt markets that make it more costly for lenders to screen and monitor borrower credit quality, resulting in a more arm's‐length relationship between borrowers and lenders. Many of these associations attenuate after IFRS adoption, suggesting that the pre‐IFRS differences in contract terms are driven by incremental information risks related to institutional differences between countries. My findings imply that incremental information risks result in a different optimal contract in international debt contracts compared to domestic debt contracts.     

Sovereign debt auctions: Uniform or discriminatory?

Many financial assets, especially government bonds, are issued by an auction. An important feature of the design is the auction pricing mechanism: uniform versus discriminatory. Theoretical papers do not provide a definite answer regarding the dominance of one type of auction over the other. We investigate the revealed preferences of the issuers by surveying the sovereign issuers that conduct auctions. We find that the majority of the issuers/countries in our sample use a discriminatory auction mechanism for issuing government debt. We use a multinomial logit procedure and discriminatory analysis to investigate the mechanism choice. It was interesting to find that market-oriented economies and those that practice common law tend to use a uniform method while economies who are less market oriented and practice civil law tend to use discriminatory price auctions.     

Immigration and equity home bias

Why do investors hold such large positions in domestic equity when there are gains to be made from international diversification? This equity home bias puzzle has received considerable attention in the literature, with asymmetric information on domestic and foreign assets (whether by individual choice or by market imperfection) emerging as the most plausible explanation. What happens when we consider a subset of investors whose information sets are closer to investors in foreign countries? I assess the relationship between immigration and equity home bias and find that inward migration is positively correlated with increased foreign equity positions and reduced home bias. Looking across income groups, outward migration reduces home bias for relatively rich countries, but may actually increase home bias when migration occurs to or from a developing country. These results suggest that immigration generates a positive externality of increased information flows for developed countries, but not for developing nations. The effects of immigration on investment are strongest within the Euro-Zone, suggesting that this positive externality of immigration is largest when barriers to portfolio diversification (such as currency risk) are lowest.     

Currency bid-ask spread dynamics and the Asian crisis: Evidence across currency regimes

Using a sample of 21 emerging and developed country currencies, we evaluate the impact of the Asian crisis on bid-ask spreads. While the crisis had widespread and uniform volatility effects, the spread effects were not uniform across emerging and developed country currencies. For Asian emerging markets, spreads widened and spread volatility increased significantly during the crisis, while developed markets spreads narrowed and spread volatility decreased significantly. We investigate the impact of more flexible and less flexible exchange rate regimes on bid-ask spreads using panel data. In general, countries with tightly-managed regimes have significantly lower spreads than countries with more freely-floating regimes, while controlling for the influence of other factors such as volatility. Asian developing market spreads are higher than spreads of the other countries, again, after controlling for the influence of other factors.     

International Price Discovery for Emerging Market Stocks: Evidence from Indian GDRs

Given the rapid increase of the number of emerging market stocks being dually listed abroad, it is important to understand the role of the foreign markets in the price discovery process. We examine this issue by studying the role of the London Global Depositary Receipts (GDR) market for Indian stocks. We find that the London and the Mumbai prices are cointegrated despite arbitrage restrictions imposed by Indian government regulations. Each market contributes almost equally to price discovery, a result in contrast to the small contribution of offshore markets to price discovery of stocks based in developed economies. The GDR market's contribution to price discovery increases with the foreign ownership of the firm and GDR issue size. We also find evidence of significant volatility spillovers from the London market to the Indian market. The overall results suggest that offshore trading in emerging market stocks play a beneficial role by aiding domestic price discovery.     

Building Stable Mortgage Markets: Lessons from Canada's Experience

The global financial crisis illustrated the high costs of boom–bust cycles in housing and mortgage markets and the importance of implementing policy frameworks that mitigate the risk of these events. This article discusses elements of Canada's policy framework that contributed to the relatively good performance of its mortgage market in recent years, including supervisory practices and mortgage underwriting standards. Lender recourse and the nondeductibility of mortgage interest payments played a complementary role. Ongoing policy challenges are also identified, including the need for monitoring to ensure the current prolonged period of low interest rates does not lead to levels of debt and house prices that create future instability in housing and mortgage markets.