PLAM Default Risk

Peter J. Elmer
Additional contact information
Peter J. Elmer: Resolution Trust Corporation 801 Seventeenth Street, N.W. Washington, D.C. 20434-0001

Journal of Real Estate Research, 1992, vol. 7, issue 2, 157-168

Abstract: This article combines cross-sectional time series data on real estate appreciation rates during the 1974 to 1989 period with an option-based model of mortgage default to simulate the default and loss characteristics of price level-adjusted mortgages (PLAMs) and standard fixed-payment mortgages (FPMs). The analysis finds significantly higher default risk for PLAMs than recognized by previous research. In particular, the expected loss of twenty- and thirty-year PLAMs with common initial loan-to-value (LTV) ratios is two to seven times higher than the expected loss of comparable FPMs and these PLAMs have much longer periods of high default risk than FPMs. Maturity must be reduced to fifteen years in order to bring PLAM default risk approximately in line with FPM default risk for most LTVs.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1992
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://pages.jh.edu/jrer/papers/pdf/past/vol07n02/v07p157.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jre:issued:v:7:n:2:1992:p:157-168

Ordering information: This journal article can be ordered from
Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
http://pages.jh.edu/jrer/about/get.htm

Access Statistics for this article

Journal of Real Estate Research is currently edited by Dr. Ko Wang

More articles in Journal of Real Estate Research from American Real Estate Society American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323.
Bibliographic data for series maintained by JRER Graduate Assistant/Webmaster ().