Rationales of Mortgage Insurance Premium Structures

Barry Dennis, Chionglong Kuo and Tyler Yang

Journal of Real Estate Research, 1997, vol. 14, issue 3, 359-378

Abstract: This study examines the rationales for the design of mortgage insurance premium structures. The actuarially sound premium prices of several widely used structures are formally derived. Two types of cross-subsidization are identified in different structures: (1) subsidization across termination years and (2) extra-subsidization of defaulters by nondefaulters. Because these two types of subsidization exist to different degree among the structures, a borrower may self-select into certain structures to maximize (minimize) the benefits (losses) of cross-subsidies. Adverse selection arises when the borrower’s characteristics cannot be completely observed by the insurer. The actuarially sound premium prices should be adjusted for such adverse selection behaviors. Numerical examples are provided to illustrate such adjustments.

Date: 1997
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10835547.1997.12090908 (text/html)
Access to full text is restricted to subscribers.

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:taf:rjerxx:v:14:y:1997:i:3:p:359-378

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjer20

DOI: 10.1080/10835547.1997.12090908

Access Statistics for this article

Journal of Real Estate Research is currently edited by William Hardin and Michael Seiler

More articles in Journal of Real Estate Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().