Participating Mortgages and the Efficiency of Financial Intermediation

28 Pages Posted: 17 Mar 2009

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 16, 2009

Abstract

The aim of this paper is to establish a basic framework of financing with a highly flexible instrument, of Participating Mortgages (PMs), to improve the efficiency of the financial system. We distinguish these from convertible mortgages and derive closed-form solutions to price a whole framework of facilities under the PM umbrella. As most contracts are of definite tenure, our contribution includes finite maturity pricing formulae, which are scarce in real estate finance. 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 16, 2009). Available at SSRN: https://ssrn.com/abstract=1360892 or http://dx.doi.org/10.2139/ssrn.1360892

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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