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A Comparison Of Option-Theoretic And Choice-Theoretic Approaches To Evaluating Alternative Financial Technologies For Mortgage Loans To Low-Income Households

  • Hartarska, Valentina M.
  • Gonzalez-Vega, Claudio
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    This paper evaluates the efficacy of two alternative lending technologies - the traditional banking technology and a cash flow based counseling program - by using competing risks (option-based) and choice theoretic approaches. We find evidence to support the notion that low-income borrowers have some degree of financial sophistication, as they prepay the mortgage loan by considering the current value of the call option. The evidence also suggests that borrower heterogeneity and insolvency affect mortgage termination.

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    File URL: http://purl.umn.edu/19645
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    Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2002 Annual meeting, July 28-31, Long Beach, CA with number 19645.

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    Date of creation: 2002
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    Handle: RePEc:ags:aaea02:19645
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    1. Deng, Yongheng & Quigley, John M. & Van Order, Robert, 1999. "Mortgage Terminations, Heterogeneity, and the Exercise of Mortgage Options," Berkeley Program on Housing and Urban Policy, Working Paper Series qt96r560pg, Berkeley Program on Housing and Urban Policy.
    2. Deng, Yongheng & Quigley, John M. & Van Order, Robert & Mac, Freddie, 1996. "Mortgage default and low downpayment loans: The costs of public subsidy," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 263-285, June.
    3. John M. Quigley., 1993. "Explicit Tests of Contingent Claims Models of Mortgage Defaults," Economics Working Papers 93-221, University of California at Berkeley.
    4. Quigley, John M., 2006. "Urban Economics," Berkeley Program on Housing and Urban Policy, Working Paper Series qt0jr0p2tk, Berkeley Program on Housing and Urban Policy.
    5. Vassilis Lekkas & John M. Quigley & Robert Order, 1993. "Loan Loss Severity and Optimal Mortgage Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 353-371.
    6. Quigley, John M. & Van Order, Robert, 1991. "Defaults on mortgage obligations and capital requirements for U.S. savings institutions : A policy perspective," Journal of Public Economics, Elsevier, vol. 44(3), pages 353-369, April.
    7. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
    8. Robert Order & Peter Zorn, 2000. "Income, Location and Default: Some Implications for Community Lending," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(3), pages 385-404.
    9. Yongheng Deng, . "Mortgage Termination: An Empirical Hazard Model with Stochastic Term Structure," Working Papers _002, University of California at Berkeley, Econometrics Laboratory Software Archive.
    10. Dennis R. Capozza & Dick Kazarian & Thomas A. Thomson, 1998. "The Conditional Probability of Mortgage Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 259-289.
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