Embedded Options in the Mortgage Contract

Brent W. Ambrose, Richard J. Buttimer

Research output: Contribution to journalArticlepeer-review

37 Scopus citations

Abstract

Loss mitigation is the process by which lenders attempt to minimize losses associated with foreclosure. As competition increases in the mortgage industry, lenders and servicers are under great pressure to adopt loss mitigation tactics rather than simply use foreclosure as the means of dealing with borrowers in default. This study presents a mortgage-pricing model that fully specifies all borrower options with respect to default, including the ability to reinstate the mortgage out of default. We document the impact of various loss mitigation programs, including forbearance and antideficiency judgments, as well as the value of credit on borrower default behavior.

Original languageEnglish (US)
Pages (from-to)95-111
Number of pages17
JournalJournal of Real Estate Finance and Economics
Volume21
Issue number2
DOIs
StatePublished - Jan 1 2000

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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