Continuous Workout Mortgages

Robert J. Shiller, Rafal Wojakowski, M. Shahid Ebrahim () and Mark B. Shackleton

No 17007, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Continuous Workout Mortgage (CWM) balance and payments are indexed using market-observable house price index in an economic environment with prepayments. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulas for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.

JEL-codes: C63 D11 D14 D92 G13 G21 R31 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-ure
Note: AP
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Continuous Workout Mortgages (2011)
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