Danny Ben-Shahar

Mortgage markets worldwide

Preface . Contributors . 1 The Emerging Mortgage Markets in China . Yongheng Deng and Peng Fei . The evolution of the mortgage markets in China. An early assessment of Chinas residential mortgage loans performance. Notes. References. 2 Mortgage Market in India . Piyush Tiwari and Pradeep Debata . Economic overview. Demographic trends and housing stock. Formal mortgage market. Securitization of housing loans. Role of government and recent regulatory reforms. Other developments. Finance to builders. Issues in housing finance: reform agenda. Acknowledgement. Notes. References. 3 Transforming Housing Finance in Japan in the 21st Century . Miki Seko . Introduction. Overview of the Japanese economy, housing markets, the housing finance markets and systems in Japan. Restructuring the public housing loan corporation: causes and possible consequences. Some recent movements in the Japanese housing finance markets and systems: securitization of real estate in Japan. Conclusion. Notes. References. Further reading. 4 Mortgage Market in Singapore . Seow Eng Ong . Housing finance in Singapore. ARM prepayment for private housing. ARM prepayment for public housing. The Central Provident Fund. ARM delinquency and default within the CPF context. Innovations in mortgage products. Conclusion. References. 5 The Israeli Mortgage Market: Mortgage Insurance as a Mechanism for Screening Default Risk . Danny Ben-Shahar, Gilat Benchetrit and Eyal Sulganik . Introduction. Brief review of the Israeli economy and mortgage market. Modelling mortgage insurance as a screening mechanism. Summary. Notes. References. 6 Housing Finance and Mortgage Markets in The Czech Republic, Hungary, Poland, Slovakia and Slovenia . A.R. Ghanbari Parsa and Mohammad Ali Mulazadeh . Introduction. Housing finance. Housing mortgage in a socialist economy. The Czech Republic. Mortgage banking. Hungary. Housing finance system in Hungary. Loan guarantee measures. Poland. Financial institutions. Affordability of mortgage loans. Evolution of housing mortgage loans. The demand for housing and mortgage credit. Short history of mortgage banking. Increasing individual housing loans. Public mortgage bonds. Slovakia. Housing finance. Slovenia. Privatization process. Mortgage loan system in Slovenia. Housing market in Slovenia. Residential loan offered by banking sector. Obstacles of the mortgage loan market in Slovenia. Discussion. Summary and conclusion. Abbreviations. References. 7 The Mortgage Lending Market in Poland . Ewa Kucharska-Stasiak and Magdalena Zaleczna . Introduction. Determinants underlying expansion of the mortgage loan market. The mortgage loan market - a retrospective analysis. Current situation on the mortgage loan market. The loan insurance system. Future of the mortgage loan market. Final comments. Notes. References. 8 Secondary Mortgage Markets in South Africa . Julia Freybote and Viola Karoly . Introduction. Economic and property market fundamentals. Primary mortgage markets. Secondary mortgage markets. Conclusion and outlook. Notes. References. 9 The Mortgage Market in Ghana . Callistus Mahama . Introduction. Contractual agreements in the housing market. Land and property in the development of capital. The housing challenge. State housing policy initiatives. Formal mortgage in Ghana. Features of the mortgage market. The legal framework. The Home Finance Company (HFC). Conclusions. References. 10 Housing Finance in Emerging Economies: Applying a Benchmark from Developed Countries . Ashok Bardhan and Robert H. Edelstein . Introduction. Housing finance and the economy. Russia, India and China: defining similarities and contrasts. Benchmarking. Concluding remarks. Notes. References. 11 Mortgage Finance in Emerging Markets: Constraints and Feasible Development Paths . Bertrand M. Renaud . Introduction. Recurring issues in developing mortgage markets. Types of mortgage systems observed in developing countries. Lessons learned and some strategic priorities. Notes. References. Appendix 1. Appendix 2. Notes to appendices. Index

Tenure Choice in the Housing Market Psychological Versus Economic Factors

The author conducted a survey to examine psychological and economic factors affecting the homeownership–tenancy choice. Among the many results, the author found disturbing evidence according to which there exists a fundamental flawed reasoning in the common judgment of the financial superiority of ownership over tenancy. Most important, however, the author finds that although psychological and economic factors involved in the tenure decision are highly correlated, the psychological factors are found to be more statistically significant in explaining the realized tenure mode. This, in turn, may suggest that psychological effects might act as the underlying forces for determining the apparent economic tenure decision.

Signaling-Screening Equilibrium in the Mortgage Market

The signaling model of Spence (1973) and the screening model of Rothchild and Stiglitz (1976) have been separately used to explain economic phenomena when there is asymmetric information. In the real world, however, situations of asymmetric information often simultaneously involve signaling and screening. In this paper, we combine signaling and screening mechanisms and demonstrate a signaling-screening separating equilibrium. We present the analysis within the framework of mortgage markets. Borrowers signal their default risk types to lenders by acquiring different credit records. This partially separates borrowers into subsets. Lenders screen each subset by offering menus of mortgage loan contracts. Borrowers, then, self-select by choosing particular contracts from the menu. We show the conditions under which the signaling-screening equilibrium is Pareto superior to a screening-only equilibrium. Copyright 2003 by Kluwer Academic Publishers

The Straight-Line Depreciation is Wanted, Dead or Alive

We propose a simple axiomatic system that any depreciation methodÂiÂacomplying with the core of the accounting of depreciationÂiÂamust obey. We show that, while none of the prevalent depreciation methods (e.g., straight-line) ex ante conforms to these principles, the accredited proportional depreciation method not only maintains the axiomatic system, but also, for a plausible family of depreciation methods, is the unique method that complies with the axiomatic system. We further propose two consistency requirements of a depreciation methodÂiÂapartition consistency and dynamic consistencyÂiÂaand show that, in contrast to the commonly used methods, the proportional depreciation method is the only one to always sustain both. Our analysis may provide further resolution to the arguable evidence on the dominance of Funds From Operations over net income in measuring performance in the real estate industry.

Default, Credit Scoring, and Loan-to-Value: A Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets

Consistent with existing literature, we first show that when borrowers?default probability on the mortgage loan is unobservable to the lender, the latter can screen borrowers by their combined choice of loan-to-value (LTV) ratio and interest rate. We further demonstrate that when borrowers also signal their default risk by acquiring a credit score, then a combined separating signaling and screening equilibrium is attained. If the signaling cost is sufficiently small, the combined signaling and screening equilibrium dominates the screening only equilibrium under both competitive and non-competitive market frameworks. However, while, under the competitive setting, borrowers benefit from constituting a credit scoring signaling system, the prospective gain is shifted to lenders under imperfect competition. Finally, we show that under both competitive and non-competitive combined signaling and screening equilibria, high and low risk borrowers, while acquiring distinct credit scores (and therefore paying different interest rates) might realize higher, lower, or identical LTV ratios. Hence, any empirical test of the relation between LTV ratio and default risk must incorporate the interrelation among the LTV ratio, credit score, and interest rate.

Theoretical and Empirical Analysis of the Multiperiod Pricing Pattern in the Real Estate Market

We examine empirically and theoretically the multi-period pricing pattern in the real estate market. First, in a game theoretic framework, we identify conditions for determining whether potential closing prices increase or decrease and marginally increase with time on market. Then, by observing rental housing transactions, we empirically find evidence that the difference between the list price and the settlement price rises and marginally decreases with time on market. This empirical result supports a Perfect Nash Equilibrium previously proposed in the model.

Anchoring and Housing Choice: Results of a Natural Policy Experiment

This research employs data from a natural experiment to assess the effects of behavioral heuristics on housing choice and public program management. The analysis focuses on programs designed to privatize public housing in Israel. The government programs provided the tenants with a call (real) option to purchase their rental unit at a discounted exercise price. We employ a large panel of transactions over the 1999–2008 period to evaluate whether the tenants used prior program price reductions as anchors in their purchase decisions. The results of hazard model estimation provide strong evidence of anchoring in the timing of home purchase. Further, model simulation suggests that by accounting for the anchoring heuristic, program managers could have both accelerated purchases and significantly increased government revenues associated with privatization. We also find evidence that anchoring varies with individual and market characteristics.

The Correlation among Immigrant Homeownership, Objective and Subjective Characteristics, and Civic Participation: New Evidence from the Israeli Experience

The correlation between immigrant objective and subjective characteristics and the likelihood of achieving homeownership is tested empirically. Also, the article examines whether homeownership promotes civic participation and community involvement among immigrants. Observing a sample of immigrants who arrived in Israel between the years 1989 and 2004, it is found that a longer stay in the receiving country, living in proximity to other immigrants, being over 35 years old, holding a full-time job, earning above average income and being a single or divorced woman associate with greater likelihood of attaining homeownership. Moreover, it is found that the subjective notion of both respect for the receiving culture and proficiency in the language positively correlate with homeownership. Finally, it is found that the previous empirical findings, according to which native homeownership is tied to civic participation, extend to the immigrant population. Research findings may serve decision-makers in setting policies that advance homeownership among immigrant populations.

Partial Ordering of Unpredictable Mobility with Welfare Implications

We propose a partial ordering of ‘unpredictable mobility’ in the spirit of Blackwells ordering of information structures. The proposed ordering ranks mobility matrices according to the degree to which elements in a given set are likely to move from one state to another, independently of their origin. Furthermore, for an important class of transition structures, our proposed ordering implies ordering, thus carrying significant welfare implications. Moreover, whenever it exists, our partial ordering functions as a sufficient condition for a class of renowned mobility measures and thereby generates, for a subset of transition matrices, unanimous ranking among mobility indices that are not generally consistent with one another.

Inequality in housing affordability: Measurement and estimation

This research proposes and examines a new measure for assessing the state of housing affordability inequality. We employ a large micro-level data set by which we estimate and evaluate the time-varying housing affordability inequality in Israel over the period 1992–2011. Results show that our developed housing affordability inequality Gini coefficient has considerably increased in the past decade. Moreover, controlling for changes in net income inequality and macroeconomic conditions, housing affordability inequality is found to positively correlate with average housing prices (computed in net income terms). Outcomes are robust to the alternative Atkinson inequality index. Furthermore, our method allows for an examination of segmentation in housing affordability. We find that segmentation particularly prevails across household head’s gender, family status, working status, the number of income providers in the household and household geographical residence. Research outcomes may direct policymakers in designing policies aiming to reduce inequality and segmentation in housing affordability.