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Financial Fragility with SAM?
Name
SSRN-id3069621.pdf
Description
Accepted version
Size
974.59 KB
Format
Adobe PDF
Checksum (MD5)
ec5fcdc3cabbfe41cecb3a0bb71da03e
Author(s)
Greenwald, Daniel L.
Landvoigt, Tim
Van Nieuwerburgh, Stijn
Date Issued
December 2020
Journal
Journal of Finance
Publisher
Wiley
Citation
Greenwald, Daniel L. et al. "Financial Fragility with SAM?" Journal of Finance 76, 2 (December 2020): 651-706. © 2020 American Finance Association
Version
Author's final manuscript
Abstract
Shared appreciation mortgages (SAMs) feature mortgage payments that adjust with house prices. They are designed to stave off borrower default by providing payment relief when house prices fall. Some argue that SAMs may help prevent the next foreclosure crisis. However, home owners' gains from payment relief are mortgage lenders' losses. A general equilibrium model in which financial intermediaries channel savings from saver to borrower households shows that indexation of mortgage payments to aggregate house prices increases financial fragility, reduces risk‐sharing, and leads to expensive financial sector bailouts. In contrast, indexation to local house prices reduces financial fragility and improves risk‐sharing.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
http://dx.doi.org/10.1111/jofi.12992
