Participating Mortgages and the Efficiency of Financial Intermediation

33 Pages Posted: 6 Mar 2008

See all articles by Muhammed Shahid Ebrahim

Muhammed Shahid Ebrahim

Durham Business School

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance

Rafal M. Wojakowski

University of Surrey; Lancaster University - Management School

Multiple version iconThere are 5 versions of this paper

Date Written: March 3, 2008

Abstract

This paper distinguishes Participating Mortgages (PMs) from Convertible Mortgages. We study variants of PMs to demonstrate that they have the potential of improving the efficiency of a financial system. We resort to closed-form formulae to price profit caps and floors identified in variants of PMs. Our contribution includes finite maturity pricing formulae, which are scarce in real estate finance as most contracts are of definite tenure. We also focus on random tenure mortgages, which occur in the context of default and pre-payment risk. Finally, we conclude our study with a public policy implication of employing PMs as workout loans especially in the ongoing sub-prime crisis.

Keywords: Participating Mortgage (PM), Shared Appreciation,Mortgage (SAM), Shared Income Mortgage (SIM), Shared Equity Mortgage (SEM), Profit Caps and Floors

JEL Classification: C63, D11, D14, D92, G13, G21, R31

Suggested Citation

Ebrahim, Muhammed Shahid and Shackleton, Mark B. and Wojakowski, Rafal M., Participating Mortgages and the Efficiency of Financial Intermediation (March 3, 2008). Available at SSRN: https://ssrn.com/abstract=1101524 or http://dx.doi.org/10.2139/ssrn.1101524

Muhammed Shahid Ebrahim

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
44 1524 594131 (Phone)
44 1524 847321 (Fax)

Rafal M. Wojakowski (Contact Author)

University of Surrey ( email )

Faculty of Business, Economics and Law
The Surrey Business School
Guildford, Surrey GU2 7XH
United Kingdom
+44 1483 683477 (Phone)

HOME PAGE: http://www.surrey.ac.uk/sbs/people/rafal_wojakowski/index.htm

Lancaster University - Management School ( email )

Lancaster, LA1 4YX
United Kingdom
+44 (1524) 593630 (Phone)
(01524) 847321 (Fax)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/rafal-wojakowski/

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