We develop a tractable general equilibrium framework of housing and mortgage markets with aggregate and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important...

We consider optimal incentive contracts when managers can, in addition to shirking or diverting funds, increase short term profits by putting the firm at risk of a low probability "disaster." To avoid such risk-taking, investors must cede additional rents to the manager. In a dynamic context,...

We derive an optimal compensation contract that incentivizes a credit rating agency (CRA) to exert effort and issue unbiased ratings. The contract rewards CRA when its credit rating is matched by the subsequent bond performance and penalizes it otherwise. The optimal contract can be implemented...

We show that commercial mortgage borrowers behave opportunistically in order to obtain principal reductions. To guide our empirical analysis, we develop a model in which lenders cannot perfectly observe borrowers' use values and renegotiation is costly. We then study the effects of a 2009 IRS...

This paper explores the practice of mortgage refinancing in a dynamic competitive lending model with risky borrowers and costly default. We show that prepayment penalties improve welfare by ensuring longer-term lending contracts, which prevents the mortgage pools from becoming disproportionately...

The leverage and debt maturity decisions of real estate firms are related. However, most empirical capital structure studies implicitly assume that they are made independently. We explore both these dimensions of capital structure in US real estate companies and REITs and find that leverage and...