Since buyers offer a premium for access to creative financing (CF), creatively-financed houses will sell for more than otherwise identical houses purchased with standard financing. A commonly suggested method for adjusting house values to eliminate the effects of CF is the "cash equivalence"...

Given the recent flood of new mortgage innovations, it is natural to wonder what features a mortgage which is "optimal" from the consumer's point of view might possess. This paper investigates this issue, using optimal control theory to characterize the time profile of mortgage payments (as well...

This paper suggests a resolution to the paradox of inefficient risk bearing by adjustable-rate mortgage (ARM) borrowers. The analysis shows that when contracts are written in a realistic way, with payments linked across time via a common loan-rate function, risk sharing and the tilt of the...

This paper uses a two-period model to analyze the borrower's choice of an optimal time pattern of mortgage payments in a world where future house values are uncertain. Since a decline in values can make the borrower's equity negative, leading to default on the mortgage, lenders in the model will...