The macro-financial implications of house price-indexed mortgage contracts

Isaiah Hull

Economics Letters, 2015, vol. 127, issue C, 81-85

Abstract: I explore an alternative mortgage contract that limits negative equity by tying outstanding debt to an index of house prices. This is done in an incomplete markets model, that is calibrated to match US micro- and macro-data. I find that switching from a non-recourse contract to an indexed contract reduces the default rate from .72% to .11% and expands homeownership rates among the young and the poor but pushes up the equilibrium base mortgage rate by 90 basis points. The volatility of net cashflows to financial intermediaries also increases slightly under the new contract.

Keywords: Default; Mortgages; Interest rates; Heterogeneous agents; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E21 E43 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Working Paper: The Macro-Financial Implications of House Price-Indexed Mortgage Contracts (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:127:y:2015:i:c:p:81-85

DOI: 10.1016/j.econlet.2014.12.033

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