The UK SAM Experience: A Financial Service or a New Type of Loan Shark Product?

Abstract:     
This paper investigates the pricing and valuation of Shared Appreciation Mortgages (SAMs) issued in 1997 in the UK. The analysis indicates high expected returns to the lenders, that were clearly predictable ex-ante, with even higher upside potential and virtually no material risk of loss to the investors. Since SAMs had been invented decades before, the high returns to the UK lenders do not represent pay for financial engineering a new, innovative product. Instead, the high effective interest rates on the SAMs appear to represent compensation for misleading repackaging of an existing product.

Number of Pages in PDF File: 24

working papers series