Screening Mortgage Default Risk: A Unified Theoretical Framework

Danny Ben-Shahar ()
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Danny Ben-Shahar: The Arison School of Business, The Interdisciplianry Center Herzliya, P.O. Box 167, Herxljya 46150 Israel

Journal of Real Estate Research, 2006, vol. 28, issue 3, 215-240

Abstract: This study developed a unified framework for theoretically analyzing a set of mortgage attributes that screens borrower types according to their unobservable default risk. In the presence of asymmetric information, a self-selection process is attained, where lower default risk type borrowers choose a mortgage loan with constant over graduated payment, constant over price-leveladjusted payment, adjustable over fixed rate, low over high loanto-value ratio, and short over long maturity. The study thus examines, among others, various mortgage attributes, which have never previously been considered in the context of mortgage default under asymmetric information. Accordingly, the theoretical predictions produce further grounds for empirical research on mortgage default.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2006
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