Residential Loan Renegotiation: Theory and Evidence
AbstractIf loan renegotiations are not uncommon, this alternative should be modeled into the contingent claims framework of mortgage pricing. There is no direct evidence on the frequency of loan renegotiation, however. A simple model of default indicates that renegotiation should occur more frequently in conventional loans versus FHA loans and in states with higher foreclosure costs versus those with lower costs. Since empirical tests using delinquency and foreclosure placement rates demonstrate no such behavioral difference, we conclude loan renegotiation does not occur frequently enough to warrant its consideration in mortgage pricing models. The rarity of circumstances under which renegotiation is mutually beneficial may account for this funding.
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Bibliographic InfoArticle provided by American Real Estate Society in its journal Journal of Real Estate Research.
Volume (Year): 10 (1995)
Issue (Month): 2 ()
Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Find related papers by JEL classification:
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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- Kau, James B, et al, 1990. "Pricing Commercial Mortgages and Their Mortgage-Backed Securities," The Journal of Real Estate Finance and Economics, Springer, vol. 3(4), pages 333-56, December.
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- Patric H. Hendershott & Robert Van Order, 1987. "Pricing Mortgages: An Interpretation of the Models and Results," NBER Working Papers 2290, National Bureau of Economic Research, Inc.
- Ross, Stephen A, 1978. "A Simple Approach to the Valuation of Risky Streams," The Journal of Business, University of Chicago Press, vol. 51(3), pages 453-75, July.
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- Chester Foster & Robert Order, 1985. "FHA Terminations: A Prelude to Rational Mortgage Pricing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 273-291.
- Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
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