Posts Tagged ‘Hipotecas


Si tenes tiempo este fin de semana…

¿Por que no leerse las 600s paginas del reporte gubernamental sobre las causas de la crisis financiera y economica de USA, a.k.a The Financial Crisis Inquiry Report?

El capitulo 8 –The CDO Machine– suena atrapante….

Link al Reporte.



Paper: Hipotecas (x3)

Strategic Default on First and Second Lien Mortgages  During the Financial Crisis


Strategic default behavior suggests that the default process is not only a matter of inability to pay.   Economic costs and benefits affect the incidence and timing of defaults.  As with prior research, we find that people default strategically as their home value falls below the mortgage value (exercise the put option to default on their first mortgage).   While some of these homeowners default on both first mortgages and second lien home equity lines, a large portion of the delinquent borrowers have kept their second lien current during the recent financial crisis.  These second liens, which are current but stand behind a seriously delinquent first mortgage, are subject to a high risk of default.   On the other hand, relatively few borrowers default on their second liens while remaining current on their first.  This paper explores the strategic factors that may affect borrower decisions to default on first vs. second lien mortgages.  We find that borrowers are more likely to remain current on their second lien if it is a home equity line of credit (HELOC) as compared to a closed-end home equity loan.  Moreover, the size of the unused line of credit is an important factor.  Interestingly, we find evidence that the various mortgage loss mitigation programs also play a role in providing incentives for homeowners to default on their first mortgages.

Link al Paper


Location Efficiency and Mortgage Default


Using a sample of over 40,000 mortgages in Chicago, Jacksonville, andSan Francisco, we model the probability of mortgage default based on differences in location efficiency. We used two proxy variables for location efficiency: 1) vehicles per household scaled by income and 2)Walk Score. We find that default probability increases with the number of vehicles owned after controlling for income. Further, we find that default probability decreases with higher Walk Scores in high income areas but increases with higher Walk Scores in low income areas. These results suggest that some degree of greater mortgage underwriting flexibility could be provided to assist households with the purchase of location efficient homes, without increasing mortgage default. They also support the notion that government policies around land use, zoning,infrastructure, and transportation could have significant impacts on mortgage default rates.

Link al Paper


Mortgage Choices and Housing Speculation


We describe a rational expectations model in which speculative bubbles in house prices can emerge. Within this model both speculators and their lenders use interest-only mortgages (IOs) rather than traditional mortgages when there is a bubble. Absent a bubble, there is no tendency for IOs to be used. These insights are used to assess the extent to which house prices in US cities were driven by speculative bubbles over the period 2000-2008. We find that IOs were used sparingly in cities where elastic housing supply precludes speculation from arising. In cities with inelastic supply, where speculation is possible, there was heavy use of IOs, but only in cities that had boom-bust cycles. Peak IO usage predicts rapid appreciations that cannot be explained by standard correlates and this variable is more robustly correlated with rapid appreciations than other mortgage characteristics, including sub-prime, securitization and leverage.Where IOs were popular, their use does not appear to have been a response to houses becoming more expensive. Indeed, their use anticipated future appreciation. Finally,consistent with the reason why lenders prefer IOs, these mortgages are more likely to berepaid earlier or foreclose. Combined with our model, this evidence suggests that speculative bubbles were an important factor driving prices in cities with boom-bust cycles.

Link al Paper



Paper: Hipotecas y registro electrónico

Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System

At the roots of the worst recession since the Great Depression were unaffordable home mortgages packaged into securities, sold to investors, and used as capital assets by financial institutions. The process of securitization, as well as financial institution over-leveraging associated with it, has been well documented and explored. However, there is one company that was a party to more questionable loans and foreclosures than any other and yet has received virtually no attention in the academic literature. Mortgage Electronic Registration Systems, Inc., commonly referred to as “MERS,” is the recorded owner of over half of the nation’s residential mortgages. MERS operates a computer database designed to track servicing and ownership rights of mortgage loans anywhere in the United States. But, it also acts as a proxy for the real parties in interest in county land title records. Most importantly, MERS is also filing foreclosure lawsuits on behalf of financiers against hundreds of thousands of American families. This Article explores the legal and public policy foundations of this odd, but extremely powerful, company that is so attached to America’s financial destiny. It begins with a brief explanation of the origins of the county real property recording systems and the law governing real property liens. Then, it explains how MERS works, why mortgage bankers created the company, and what MERS has done to transform the underlying assumptions of state real property recording law. Next, it explores controversial doctrinal issues confronting MERS and the companies that have relied on it, including (1) whether MERS actually has standing to bring foreclosure actions; (2) whether MERS should be considered a debt collector under the federal Fair Debt Collection Practices Act; and (3) whether loans recorded in MERS’ name should have priority in various collateral competitions under state law and the federal bankruptcy code. The article culminates in a discussion of MERS’ culpability in fostering the mortgage foreclosure crisis and what the long term effects of privatized land title records will have on our public information infrastructure. The Article concludes by considers whether the mortgage banking industry, in creating and embracing MERS, has subverted the democratic governance of the nation’s real property recording system.

Link al Paper


Infograma du Jour: Timba Timba

(Fuente: SocGen, via Zero Hedge)


Hipotecas, convexidad negativa y una critica…

Desde Canada, Nick Rowe tiene un interesante post sobre como las hipotecas a 30 años a tasa fija en Estados Unidos no tienen razon de ser. Tanto desde el que la pide, como del que la ofrece (bancos).


First off, American 30-year fixed rate mortgages aren’t 30-year and aren’t fixed rate. The term is variable, and the rate is variable. That’s because they are “open” mortgages, rather than “closed” mortgages. A 30-year 6% closed mortgage really does have a fixed term and a fixed rate. You know exactly how much you will be paying per month for the next 30 years. An open mortgage means you have the option to pay off or refinance that mortgage at any time over the next 30 years. And you will of course exercise that option at any time when the market interest rate for the remaining term falls below the rate you are currently paying.


If the option were free, of course you would want an open mortgage. You can’t lose. But, of course, there must be someone taking the other side of the bet. The lender won’t sell you that option for free. You have to pay for it, and you pay for it in higher interest rates.

The longer the remaining term to maturity of the mortgage, the greater the chance that market rates will fall, the more that option is worth, and the higher the interest rate premium you would pay to buy that option. If you only have a couple of months left on the mortgage, interest rates won’t move very far in that short time, so an open mortgage will have only a slightly higher interest rate than a closed mortgage. So even if interest rates on closed mortgages have no trend up or down as the remaining term to maturity shortens over time, interest rates on open mortgages will tend to trend down as the remaining term to maturity shortens. So the option to refinance will probably be exercised again and again.

It’s equally weird and stupid from the lender’s point of view. Lenders aren’t always risk-neutral; they care about interest rate risk and liquidity risk. (…) Why would you ever agree to write a one way bet that you lose if interest rates fall? Falling interest rates are the one thing that retirees and pension plans want to insure against, not bet that they won’t happen! It’s really stupid.

Localice esta nota via un post RortyBomb sobre el tema. Del mismo rescato la siguiente frase:

The idea of home ownership for a broad class of people as a mechanism for building equity and wealth, without government intervention, doesn’t exist


Explicando Finanzas Estructuradas

Marginal Revolution le dedica un post a las finanzas estructuradas y a sus dotes de ocultar el riesgo (a.k.a CDO). La breve nota incluye un ejemplo y una hoja de calculo; muy explicativo.


Suppose that we misspecified the underlying probability of mortgage default and we later discover the true probability is not .05 but .06.  In terms of our original mortgages the true default rate is 20 percent higher than we thought–not good but not deadly either.  However, with this small error, the probability of default in the 10 tranche jumps from p=.0282 to p=.0775, a 175% increase.  Moreover, the probability of default of the CDO jumps from p=.0005 to p=.247, a 45,000% increase!


Paper sobre el tema.

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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