Continuous Workout Mortgages

Shiller, Robert J. and Wojakowski, Rafal and Ebrahim, Shahid and Shackleton, Mark (2011) Continuous Workout Mortgages. NBER Working Papers. ISSN 0898-2937

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Abstract

Continuous Workout Mortgage (CWM) balance and payments are indexed using market-observable house price index in an economic environment with prepayments. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulas for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.

Item Type:
Journal Article
Journal or Publication Title:
NBER Working Papers
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/aacsb/disciplinebasedresearch
Subjects:
ID Code:
53123
Deposited By:
Deposited On:
09 Mar 2012 03:00
Refereed?:
No
Published?:
Published
Last Modified:
23 Sep 2020 01:03