Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238887 
Year of Publication: 
2018
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 11 [Issue:] 3 [Publisher:] MDPI [Place:] Basel [Year:] 2018 [Pages:] 1-18
Publisher: 
MDPI, Basel
Abstract: 
This paper explores the implications of a housing market bubble for three critical elements of mortgage contract design: difference between term to maturity and amortization period; prepayment options; and, lender recourse in the event of default. Using an extension of classical immunization theory, this paper provides equilibrium conditions demonstrating the risk reduction benefits of shorter term to contract maturity at origination for lenders of long amortization mortgage contracts. In addition, the risks of underpricing prepayment and no recourse default options in the mortgage contract when compared with full recourse mortgage contracts having yield maintenance prepayment penalties are explored by contrasting the ability of US and Canadian mortgage funding systems to withstand a housing market bubble collapse that might occur.
Subjects: 
classical fixed income immunization theory
mortgage contract design
systemic risk management
housing market bubbles
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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