their option value by delaying resolution or modifying the loan. In the mortgage market, a conflict of interest (“holdup … holdup servicers are able to delay action on the first-lien mortgage. When they do act, servicers are more likely to choose …

This paper solves a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation …, and interest rate risk. It uses a zero-profit condition for mortgage lenders to solve for equilibrium mortgage rates given … borrower characteristics and optimal decisions. The model quantifies the effects of adjustable vs. fixed mortgage rates, loan …