Comparing Mortgage Credit Risk Policies : An Options-Based Approach

Buckley, Karaguishiyeva,Van Order, and Vecvagare analyze the structure of approaches to mortgage credit risk that are now being used in a number of OECD and transition economies. The authors' basic approach is to show how option pricing models can help measure and evaluate the risks of various schemes. They find that mortgage default insurance can be a cost-effective tool for both improving housing affordability and efficiently addressing some of the rationing that characterizes this market. When correctly structured, as it is in a number of transition and market countries, this kind of program can be expected to reduce nonprice rationing at an actuarially fair price. At the same time, considerable care must be exercised in the development of such instruments. Geographical risk diversification, particularly across borders, can play a major role in the success of these programs. Such diversification could be important not only in smaller transition economies but in EU countries as well.

Bibliographic Details

Main Authors:	Buckley, Robert, Karaguishiyeva, Gulmira, Van Order, Robert, Vecvagare, Laura
Language:	English en_US
Published:	World Bank, Washington, DC 2003-05
Subjects:	ASSET PRICES, ASYMMETRIC INFORMATION, BANKRUPTCY, BAUSPARKASSEN, BONDS, CAPITAL REQUIREMENTS, COMPARATIVE ADVANTAGE, CONTINGENT LIABILITIES, CONTINGENT LIABILITY, COVERAGE, CREDIT INSURANCE, CREDIT POLICIES, CREDIT RATING, CREDIT RATIONING, CREDIT RISK, CREDIT RISKS, DEBT, DEBT FINANCING, DEFAULT RISK, DEPOSIT INSURANCE, DIVIDENDS, DOWN PAYMENTS, EMPIRICAL EVIDENCE, FACE VALUE, FINANCIAL INSTITUTIONS, FINANCIAL SECTOR, FINANCIAL SYSTEMS, GOVERNMENT EXPENDITURES, HOMEOWNERSHIP, HOUSEHOLD INCOME, HOUSING, HOUSING AFFORDABILITY, HOUSING MARKETS, INFORMATION PROBLEMS, INSURANCE, INSURANCE COMPANIES, INSURERS, LAWS, LEVEL PLAYING FIELD, MARKET ECONOMIES, MARKET INSTITUTIONS, MATURITIES, MORTGAGE, MORTGAGE CREDIT, MORTGAGE CREDIT INSURANCE, MORTGAGE DEFAULT, MORTGAGE DEFAULT INSURANCE, MORTGAGE INSURANCE, MORTGAGE INSURERS, MORTGAGE LENDING, MORTGAGE LOAN, MORTGAGE LOANS, MORTGAGE MARKET, MORTGAGE MARKETS, MORTGAGES, NEGATIVE EQUITY, POLICY RESEARCH, PREMIUMS, PRESENT VALUE, PRICE RATIONING, PRICING MODELS, PRIVATE INSURANCE, PROGRAMS, PUBLIC INSURANCE, PUBLIC POLICY, RATES, RESERVES, RISK ALLOCATION, RISK DIVERSIFICATION, SAVINGS, SAVINGS BANKS, TRANSITION ECONOMIES, TRANSPORT, URBAN DEVELOPMENT MORTGAGES, CREDIT TRANSACTIONS, LOANS, LENDING, GUARANTEES, METHODOLOGY, HOUSEHOLDS, TRANSACTION COSTS, SUBSIDIES, URBAN DEVELOPMENT,
Online Access:	http://documents.worldbank.org/curated/en/2003/05/2360828/comparing-mortgage-credit-risk-policies-options-based-approach https://hdl.handle.net/10986/18180
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