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FHA Terminations: A Prelude to Rational Mortgage Pricing

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  • Chester Foster
  • Robert Order
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    Abstract

    Recent models of pricing mortgages and/or mortgage insurance have used option-pricing models as their framework. The focus is usually on default, which is viewed as a put option (to sell the house to the lender in exchange for the mortgage) and prepayment, which is viewed as a call option (to buy the mortgage from the lender). Analysis then uses techniques like those used to price options in capital markets. Unfortunately, homeowners do not seem to exercise their option as quickly as do traders in organized markets. We estimate prepayment and default functions, which are meant to be a first step in developing modified, option-based models of mortgage pricing. Copyright American Real Estate and Urban Economics Association.

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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 13 (1985)
    Issue (Month): 3 ()
    Pages: 273-291

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    Handle: RePEc:bla:reesec:v:13:y:1985:i:3:p:273-291

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