Leverage and Mortgage Foreclosures

Posted: 9 Feb 2011

See all articles by James B. Kau

James B. Kau

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Donald C. Keenan

University of Cergy-Pontoise; University of Georgia

Alexey A. Smurov

Federal National Mortgage Association (Fannie Mae)

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Date Written: February 8, 2011

Abstract

In this paper, we deduce the default and prepayment characteristics of mortgages by examining the actual behavior of a large set of conformation fixed rate mortgages tracked over time. Employing reduced form pricing techniques, we are then able to fully value such mortgages, and so determine the cost as well as the probability of default for any particular mortgage. The analysis reveals the levels of foreclosures that can be expected when loans are leveraged at the high loan-to-value ratios characteristic of recent years.

Keywords: Mortgage, Default, Leverage

Suggested Citation

Kau, James B. and Keenan, Donald C. and Smurov, Alexey A., Leverage and Mortgage Foreclosures (February 8, 2011). Journal of Real Estate Finance and Economics, Vol. 42, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1758043

James B. Kau (Contact Author)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-9110 (Phone)
706-542-4295 (Fax)

Donald C. Keenan

University of Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

University of Georgia ( email )

510 Brooks Hall
Athens, GA 30602
United States
706-542-3668 (Phone)

Alexey A. Smurov

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

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