As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount. Our analysis: tests the extent to which the option approach can explain default and prepayment...

The most important public-policy issues raised by government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac (Famp;F), revolve around their charters and the perception of government support that goes those charters. The perception of government support gives GSEs quot;embedded...

This paper presents a unified model of the default and prepayment behavior of homeowners in a proportional hazard framework. The model uses the option-based approach to analyze default and prepayment and considers these two interdependent hazards as competing risks. The results indicate the...

Much of the attention regarding the role of housing and the economy has been concerned with traditional macroeconomic business cycle problems, such as the role of housing as a stabilizer or destabilizer in the macro economy in the quot;short run.quot; Here the focus is on the periods beyond...

We examine the history of U.S. mortgage as a means of illustrating the influence of different aspects of the U.S. common law system on financial development. We hypothesize that the value of common law to financial development is with respect to the flexibility that the system provides market...

This paper presents an asymmetric information model of financial structure. The model has two types of financial institutions: banks (traditional intermediaries) and securities markets, both of which can hold loans made to firms to finance investments. The securities markets raise money at lower...

This paper models the structure of a financial market that is composed of two types of institutions, banks and securities or secondary markets. The model analyzes the development of the securities market as a way of trading off its lower cost of securitization with adverse selection due to...

Buckley, Karaguishiyeva, Van Order, and Vecvagare analyze the structure of approaches to mortgage credit risk that are now being used in a number of OECD and transition economies. The authors' basic approach is to show how option pricing models can help measure and evaluate the risks of various...

We document that technical progress in originating and pricing mortgages has enabled a trend since 1979 toward more relaxed credit standards on mortgage lending, which is reflected in rising foreclosure rates. We then decompose annual variation in mortgage performance measured by share of loans...

This paper presents a unified model of the default and prepayment behavior of homeowners in a proportional hazard framework. The model uses the option-based approach to analyze default and prepayment and considers these two interdependent hazards as competing risks. The results indicate the...