A comment on mortgage procylicality

Trond-Arne Borgersen and Karl Robertsen

Global Business and Economics Review, 2012, vol. 14, issue 4, 274-282

Abstract: This paper comments on mortgage procyclicality. A framework for credit constraints along the lines of Kiyotaki and Moore (1997) is applied to illustrate a potential regime shift in the credit risk assessments of mortgagees. Depending on the relationship between house price growth and the alternative rate of return the weight given to collateral and debt-servicing ability may vary according to the house price cycle as mortgagees engage in search-for-yield. The regime shifts induced by increased global liquidity and expectations of continued housing appreciation might stimulate owner-occupation and LTV-ratios and induce mortgage procyclicality.

Keywords: mortgage procyclicality; house prices; credit constraints; credit risk assessment; collateral; debt servicing; global liquidity; housing appreciation. (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:14:y:2012:i:4:p:274-282

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