A pricing model is developed for a reverse mortgage contract where the borrower receives payments either as a lump sum or in an annuity while the loan balance accumulates as a claim against the house. No underwriting criteria on income are applied. One risk of default is that the borrower will remain in the house after the negatively amortizing loan balance exceeds the value of the house. An explicit pricing model of the reverse mortgage permits the evaluation of this default "crossover" option. Alternative methods involving life insurance contracts and securitization are compared as secondary market channels. Copyright American Real Estate and Urban Economics Association.
Without a subprime market, some borrowers by virtue of poor credit history, unstable income, and other characteristics are unable to qualify for a mortgage. With a subprime market, there is a more complete credit supply schedule with the market pricing for poorer credit quality in the mortgage rate. By completing the capital market, subprime lenders reduce borrowing constraints. The result is a social welfare gain. Low-credit applicants otherwise denied funding are able to qualify by paying higher interest rates in exchange for offering more equity or lower loan-to-value ratios. This prediction is consistent with the subprime applicants financing or refinancing their mortgages at relatively low loan-to-value ratios. Copyright Springer Science + Business Media, Inc. 2004mortgages, market completion, subprime lending,
Real estate agents have flexibility in choosing hours and employers. These responses are tested with a five-equation recursive model. Agents choose between full- and part-time work. The conditional wage measures productivity adjusted for self-selection to each status. Hours worked in each status depend on the fitted after-tax wage and household income, yielding flexible supply elasticities. Using a 2005 survey of 8,450 U.S. real estate agents, a year of experience raises the full-time hourly wage by 2.5%. Conditional hours worked decline by 0.6%, implying an earnings return of 1.9% per year of experience. The labor supply elasticity for full-time agents is 0.21; it is almost zero for part timers. Copyright (c) 2009 American Real Estate and Urban Economics Association.
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