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TY - JOUR DO - 10.23895/KDIJEP.2018.40.3.69 UR - https://doi.org/10.23895/KDIJEP.2018.40.3.69 TI - The Effects of Non-Recourse Mortgages on Default Risks and Households’ Surplus† TT - The Effects of Non-Recourse Mortgages on Default Risks and Households’ Surplus T2 - kdijournalofeconomicpolicy AB - We study whether a default option attached to non-recourse mortgages improves borrowers' surplus from mortgage financing. By defaulting on mortgage debt, borrowers can save their non-collateralized income from being foreclosed. In exchange, borrowers must forgo non-monetary surplus from retaining any collateral. Banks may charge a high mortgage rate due to increased default rates. We find that the interest rate of non-recourse mortgage decreases with the borrower's surplus from home ownership. Moreover, non-recourse mortgages benefit only borrowers who deem housing property as an investment asset. Hence, the transition to a non-recourse mortgage is detrimental to welfare if the borrower enjoys a large surplus from home ownership. Although the borrower privately knows how much surplus she enjoys from home ownership, a menu of non-recourse mortgage contracts may exist, yielding a separating equilibrium without information rent. AU - RHEE KEEYOUNG VL - 40 IS - 3 SP - 69 EP - 89 PY - 2018/08/31 PB - 한국개발연구원 SN - 2586-2995/2586-4130 LA - ENG ER -
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@article{10.23895/KDIJEP.2018.40.3.69, author = {RHEEKEEYOUNG}, title = {The Effects of Non-Recourse Mortgages on Default Risks and Households’ Surplus}, journal = {KDI Journal of Economic Policy}, publisher = {한국개발연구원}, volume = {40}, number = {3}, pages = {69-89} year = 2018, month = 08 }
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