Participating mortgages and the efficiency of financial intermediation |
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Authors: | M. Shahid Ebrahim Mark B. Shackleton Rafa? M. Wojakowski |
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Affiliation: | aBangor Business School, Bangor University, Hen Goleg, College Road, Bangor, LL57 2DG North Wales, UK;bLancaster University Management School, Department of Accounting and Finance, Lancaster LA1 4YX, UK |
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Abstract: | This paper establishes a basic framework to study three different variants of Participating Mortgages (PMs). We obtain results for Shared Appreciation Mortgages (SAMs), Shared Income Mortgages (SIMs) and Shared Equity Mortgages (SEMs) in closed-form. We illustrate our findings with examples that show PMs are also attractive in an environment where prepayment can occur. Finally we conclude with the public policy implications of employing PMs as workout loans, especially post sub-prime crisis. We argue that by facilitating better risk sharing, PMs offer a means to enhance the efficiency and resiliency of the financial system. |
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Keywords: | JEL classification: C63 D11 D14 D92 G13 G21 R31 |
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