Mortgage Put Options and Real Estate Markets

Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate

Evidence is shown, using US foreclosure data by state 1975–93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the ris...

Evaluating Real Mortgage Mitigation Options

We provide an appropriate comprehensive model for assessing the likely contribution of current US government programs to alleviate homeownership financial distress. In a simulation of five available mortgage distress termination options plus continuation and repayment, the HAMP program appears to foster mortgage mitigation, given our parameter value assumptions, primarily through enabling and e...

Bubbles in Real Estate Markets

Real estate markets and bank distress

We investigate the relationship between real estate markets and bank distress among German universal and specialized mortgage banks between 1995 and 2004. Higher house prices increase the value of collateral, which reduces the probability of bank distress (PDs). But higher prices at given rents may also indicate excessive expectations regarding the present value of real estate assets, which can...

Contagion Channels between Real Estate and Financial Markets∗

The recent crisis has demonstrated the close linkages between various asset classes within a country as well as the association between assets internationally. The aim of this research is to provide for a better understanding of some of these linkages by conducting an empirical investigation of the channels underlying the risk of contagion between real estate and financial markets in the United...