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Pricing Mortgage Default and Foreclosure Delay

Brent Ambrose, Richard Buttimer and Charles A Capone

Journal of Money, Credit and Banking, 1997, vol. 29, issue 3, 314-25

Abstract: This paper extends current mortgage pricing models to recognize the impact that delays between default and foreclosure have on the value of default to the borrower and the resulting value of the mortgage to investors. The model explicitly captures potential costs (through postforeclosure deficiency judgments) and benefits (in the elimination of negative equity and 'free' rent) that must be weighed at the time of default in determining whether the ultimate put option (via allowing foreclosure) is in-the-money. The results provide policy implications concerning the operation of the FHA insurance program. Copyright 1997 by Ohio State University Press.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:29:y:1997:i:3:p:314-25

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