Abstract
| Original language | English |
|---|---|
| Journal | Real Estate Economics |
| Number of pages | 40 |
| ISSN | 1080-8620 |
| DOIs | |
| Publication status | Published - 16 Jul 2018 |
Bibliographical note
Epub ahead of print. Published online: 16. July 2018Cite this
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Second Mortgages : Valuation and Implications for the Performance of Structured Financial Products. / Ghent, Andrea C.; Miltersen, Kristian; Tourus, Walter N.
In: Real Estate Economics, 16.07.2018.Research output: Contribution to journal › Journal article › Research › peer-review
TY - JOUR
T1 - Second Mortgages
T2 - Valuation and Implications for the Performance of Structured Financial Products
AU - Ghent, Andrea C.
AU - Miltersen, Kristian
AU - Tourus, Walter N.
N1 - Epub ahead of print. Published online: 16. July 2018
PY - 2018/7/16
Y1 - 2018/7/16
N2 - We provide an analytic valuation framework to value second lien mortgages and first lien mortgages when homeowners can take out a second lien. We use the framework to value mortgage‐backed securities (MBS) and, in particular, quantify the greater risk associated with MBS backed by first liens that have “silent seconds.” Rating MBS without accounting for homeowners' equity extraction option results in much higher ratings than warranted by expected loss. While in our benchmark calibration, the senior tranche rating should be A1 rather than Aaa, the big losers from the equity extraction option are the mezzanine tranches that are nearly wiped out.
AB - We provide an analytic valuation framework to value second lien mortgages and first lien mortgages when homeowners can take out a second lien. We use the framework to value mortgage‐backed securities (MBS) and, in particular, quantify the greater risk associated with MBS backed by first liens that have “silent seconds.” Rating MBS without accounting for homeowners' equity extraction option results in much higher ratings than warranted by expected loss. While in our benchmark calibration, the senior tranche rating should be A1 rather than Aaa, the big losers from the equity extraction option are the mezzanine tranches that are nearly wiped out.
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U2 - 10.1111/1540-6229.12257
DO - 10.1111/1540-6229.12257
M3 - Journal article
JO - Real Estate Economics
JF - Real Estate Economics
SN - 1080-8620
ER -