This paper presents a systematic framework for capturing the collateral-driven mortgage default risk. A forward-looking home price distribution model is developed that explicitly incorporates different sources of volatility in the market value of collateral houses. A consistent and...

We develop a framework to quantify credit risks of non-traditional mortgage products (NMPs). Ex ante probabilities of default are caused by willingness-to-pay and ability-to-pay problems and the high default rates for NMPs confirm that payment shock is a critical default risk indicator. Monte...