The Evolution of the Subprime Mortgage Market

Free markets and foreclosures: An examination of contradictions in neoliberal urbanization in Houston, Texas

“…In response, according to Foster andMagdoff (2009) andHarvey (2010), the Federal Reserve has kept interest rates low. Financing for low-income families became more attractive to investors with financial deregulation in the U.S. which fostered new real estate financing tools designed to reduce risk, like mortgage-backed securities (MBS) and ARMs (Aalbers, 2012: Chomsisengphet & Pennington-Cross, 2006Dymski, 2012;Gotham, 2006;Immergluck, 2009a;Newman, 2009).…”

Mortgage contract design and systemic risk immunization

“…IV). Despite a variety of risk based mortgage contract designs that appeared in the expansion of the sub-prime mortgage market, e.g., Chomsisengphet and Pennington-Cross (2006) and Piskorski and Tchistyi (2010), the systemic risks associated with mortgage contract design have to be addressed. While the residential mortgage financing landscape has changed dramatically since long term, fixed rate mortgages were introduced with government backing in the 1930s, periodic disruptions and collapses in the mortgage market have been addressed by changing financing conduits rather than altering the conventional mortgage contract.…”

Participating mortgages and the efficiency of financial intermediation

“…Financial institutions can mitigate this risk by imposing a penalty to deter potentially mobile borrowers or those who flip property frequently. The penalty in this section is designed so that to mimic those found in alternative mortgages like subprime (see Chomsisengphet and Pennington-Cross, 2006) and is in the spirit of Stanton and Wallace (1998). It can be evaluated using the methodology described below.…”

“…This crisis was triggered by homeowners who inadvertently transferred risk when reacting to one of several motivations. They extracted a substantial amount of equity from their homes through refinancing (see Khandani et al, 2009;LaCour-Little et al, 2009;Mian and Sufi, 2009) or took on an extraordinary amounts of debt in order to increase consumption compared to their permanent income (see Hurst and Stafford, 2004;Chomsisengphet and Pennington-Cross, 2006;Doms and Krainer, 2007). 1 Qi and Yang (2009) attribute foreclosure risks to the high loan to value (LTV) ratio of mortgages, so as this ratio increased, risk was transferred to the lenders.…”