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Participating mortgages and the efficiency of financial intermediation

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Author Info

  • Ebrahim, M. Shahid
  • Shackleton, Mark B.
  • Wojakowski, Rafal M.

Abstract

This paper establishes a basic framework to study three different variants of Participating Mortgages (PMs). We obtain results for Shared Appreciation Mortgages (SAMs), Shared Income Mortgages (SIMs) and Shared Equity Mortgages (SEMs) in closed-form. We illustrate our findings with examples that show PMs are also attractive in an environment where prepayment can occur. Finally we conclude with the public policy implications of employing PMs as workout loans, especially post sub-prime crisis. We argue that by facilitating better risk sharing, PMs offer a means to enhance the efficiency and resiliency of the financial system.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 11 (November)
Pages: 3042-3054

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3042-3054

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Participating mortgage Shared appreciation mortgage Shared income mortgage Shared equity mortgage Profit caps and floors Prepayment risk intensity;

References

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Cited by:
  1. Shiller, Robert J. & Wojakowski, Rafał M. & Ebrahim, M. Shahid & Shackleton, Mark B., 2013. "Mitigating financial fragility with Continuous Workout Mortgages," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 269-285.
  2. Shahid Ebrahim, M. & Hussain, Sikandar, 2010. "Financial development and asset valuation: The special case of real estate," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 150-162, January.

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