Abstract

http://ssrn.com/abstract=1662712
 
 

Citations



 


 



Pay Me Now or Pay Me Later: Alternative Mortgage Products and the Mortgage Crisis


Michael LaCour-Little


California State University at Fullerton

Jing Yang


California State University, Fullerton

August 20, 2010

Real Estate Economics, Forthcoming

Abstract:     
Mortgage contract design has been identified as a contributory factor in the recent market crisis. Here we examine alternative mortgage products (including interest-only and other deferred amortization structures) and develop a game theoretic model of contract choice given uncertain future income and house prices across different types of borrowers. Results imply that deferred amortization contracts are more likely to be selected in housing markets with greater expected price appreciation and by households with greater risk tolerance; moreover, such products necessarily entail greater default risk, especially among lower-income households who are aggressive in housing consumption levels. Empirical tests of model predictions generally provide support for the theory.

Keywords: mortgage, housing, residential mortgage finance

Accepted Paper Series


Not Available For Download

Date posted: August 23, 2010  

Suggested Citation

LaCour-Little, Michael and Yang, Jing, Pay Me Now or Pay Me Later: Alternative Mortgage Products and the Mortgage Crisis (August 20, 2010). Real Estate Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1662712

Contact Information

Michael LaCour-Little (Contact Author)
California State University at Fullerton ( email )
5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)
Jing Yang
California State University, Fullerton ( email )
Fullerton, CA 92831
United States
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