The Effects of Non-Recourse Mortgages on Default Risks and Households’ Surplus†

KDI Journal of Economic Policy

卷:40

RHEE, KEEYOUNG¹ 

[1] Fellow, Korea Development Institute;

关键词: Non-recourse Mortgage;    Strategic Default;    Adverse Selection;   

DOI  :  10.23895/kdijep.2018.40.3.69

来源: DOAJ

【 摘 要 】

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.

【 授权许可】

Unknown