Why Are There No Fixed-Rate Mortgages in Taiwan

Slides:

Advertisements

Similar presentations

Equilibrium in Both the Goods and Money Markets: The IS-LM Model

Advertisements

Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright © 2011 Standard.

Chapter 12 Controlling Default Risk, Borrower Qualification, and Loan Underwriting.

Investment and Saving Decisions

Mortgage Loans Fixed Income Securities. Outline  What is a mortgage?  Major Originators  Alternative Mortgage Instruments  Prepayments and their impacts.

“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Chapter 18 Real Estate Finance Tools: Present Value and Mortgage Mathematics.

Topic 4 Financing Strategies. Topic 4: Financing Strategies Learning Objectives – (a) Analyze the various sources of borrowing available to a client and.

Macroeconomics (ECON 1211) Lecturer: Mr S. Puran Topic: Central Banking and the Monetary System.

Macroeconomics Prof. Juan Gabriel Rodríguez

Chapter 6 Risk and Term Structure of Interest Rates.

Team 3 Economic Analysis Team Project Home Financing.

“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Chapter 19 Residential Real Estate Finance: Mortgage Choices, Pricing.

 In 2002, subprime mortgage originations totaled about $200 billion or 7% of the mortgage market.  Three years later these originations on these loans.

1 Chapter 5 Adjustable Rate Mortgages. 2 Overview Adjustable Rate Mortgages and Lender Considerations Interest Rate Risk of Constant Payment Mortgages.

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved CHAPTER5CHAPTER5 CHAPTER5CHAPTER5 Adjustable Rate Mortgages.

EC102: Class 3 LT Christina Ammon.

Residential Financial Analysis

Multinational business Week 10 workshop Global financial crisis.

FINANCE 101 Self-Test No. 3 for Midterm #1 Market yields incorporate a premium for past inflation experience  True True  False False.

Unit 2 SL Economics Year 1. Market A market is a situation where potential buyers are in contact with potential sellers. It enables the needs and wants.

Adjustable-rate Mortgages. Risk Sharing Arrangement Lender bears all risk Shift all interest rate risk to borrower Shift part of interest rate to borrower.

The Theory of Individual Behavior. Overview I. Consumer Behavior n Indifference Curve Analysis n Consumer Preference Ordering II. Constraints n The Budget.

© 2010 Pearson Education Canada. Beginning in August 2007 and running through 2008, global financial markets were in crisis. The epicentre of the crisis.

THE BOND MARKET Frederick University The Bond Market Bond supply Bond demand Bond market equilibrium.

Fixed Income Basics - part 2 Finance 70520, Spring 2002 The Neeley School of Business at TCU ©Steven C. Mann, 2002 Forward interest rates spot, forward,

Prepayment option and the interest rate differential between a fixed- and floating-rate mortgage loan Jyh-Bang Jou Graduate Institute of National Development,

課程 9: ARM Payment Plans. What is an Adjustable Rate Mortgages (ARM) In an ARM the debt service can increase or decrease depending on fluctuations in a.

Chapter 6 Markets, Prices, Supply, and Demand. Objective: understand short-run economic fluctuations. Micro foundations: the choices made by consumers.

Consumer Behavior & Utility Maximization ECO 2023 Chapter 7 Fall 2007 Created by: M. Mari.

ANDREW MACDONALD General Manager – Treasury & Capital Markets Chairman – Amber Homeloans Membership SBS Operational Board Asset & Liability Committee Product.

課程七 : Adjustable-rate Mortgages. Deficiencies of traditional fixed rate mortgage With high and variable inflation two problems are created: tilt problem.

To use the banker’s rule to determine the amount of money a person may borrow you may borrow up to 2.5 times your annual income annual income X 2.5 amount.

Chapter 10 The Rational Consumer.

Managing Interest Rate Risk Chapter No.. Managing Interest Rate Risk  Treasures is responsible for managing risk arising from interest from interest.

MORTGAGE LOANS FINANCIAL CRISIS AND FIN 5333 THEERADEJ SUABTRIRAT ANH NGUYEN SUKIT THAOWAN.

Copyright © 2010 Pearson Education Canada. Beginning in August 2007 and running through 2008, global financial markets were in crisis. The epicentre.

A Place to Buy: The Buying Process I can determine the advantages & disadvantages of buying a home. I can explain the steps in buying a house. I can analyze.

1 Borrower characteristics and mortgage choice in Sweden Maria Hullgren & Inga-Lill Söderberg Aim of Paper: 1.To investigate driving forces behind mortgage.

Money Market Graph Why do we have it? What makes the demand curve move?

HISTORY VS EXPECTATIONS -- PAUL KRUGMAN PRESENTATION BY -KOSHA MODI -PALLAVI JINDAL.

Personal Finance Home Finance

Chapter 17 Foundations for Longer-Term Financing

Household Behavior and Consumer Choice

Interest Rates Chapter 4 (part 2)

Section 4 Lecture November 2016 Mr. Gammie

7-1 One of the Goals of Interest Rate Hedging: Protect the Net Interest Margin (continued) We calculate a firm’s net interest income to see how it will.

Chapter 9 A Two-Period Model: The Consumption-Savings Decision and Credit Markets Macroeconomics 6th Edition Stephen D. Williamson Copyright © 2018, 2015,

10b - ARE BUSINESSES EFFICIENT? Monopolies in the Long Run

Indifference Curve Analysis

Agenda Actions Year to Date

Types of Mortgage & Selling a Home

What led to the worst financial crisis of our time?

Default Risk, Borrower Qualification, and Loan Underwriting

23 FINANCE, SAVING, AND INVESTMENT.

Demand & Supply Together.  How is the price of a good determined?  The market forces of supply AND demand work simultaneously to determine the price.

Good news for real estate borrowers Good news for real estate borrowers. By 2003, inflation-adjusted mortgage rates were about as low as government.

Summary Notes Economics 230 Part II.

SECTION 10-1 Mortgage Loans pp

Benefits of PMRC Mortgage Lenders

10b - ARE BUSINESSES EFFICIENT? Monopoly in the Long Run

ECONOMY FOR REAL ESTATE (BPE 33902)

24 Money Demand, the Equilibrium Interest Rate, and Monetary Policy

SECTION 10-1 pp Mortgage Loans.

Module 13 Buying a Home September 2018.

Consumer Choices and Economic Behavior

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Understanding Interest Rates

24 Money Demand, the Equilibrium Interest Rate, and Monetary Policy

Entrance Ticket What are 4 things that you should do or ask when you go on an apartment visit?

FINANCIAL MARKET AND TIME VALUE

Presentation transcript:

Why Are There No Fixed-Rate Mortgages in Taiwan Yao-Min Chiang Department of Finance National Chengchi University August 28, 1998

Mortgage Instruments Fixed-rate mortgages (FRMs) Adjustable-rate mortgages (ARMs) FRMs ARMs -------------------------------------------------- Borrowers bear Borrowers bear no interest rate risk all interest rate risk

Lenders Use FRMs and ARMs to Reveal Borrower Mobility

Borrowers Mortgage Choice Strategy The objective of a borrower is to maximize hie/her utility.

Pooling Equilibrium - All borrowers choose ARMs the condition for G4 to be the equilibrium outcome is: Given r0<E(r1), we have Given r0>E(r1), we have

Pooling Equilibrium - All borrowers choose ARMs A quadratic utility function is used to run the numerical analysis. Market Equilibrium

Borrowers' choice behavior change due to a change in borrowers' initial income

Borrowers' choice behavior change due to a change in borrowers' expectation about future income

Borrowers' choice behavior change due to a change in the interest rate volatility

Borrowers' choice behavior change due to a change in the initial interest rate

Borrowers' choice behavior change due to a change in the expectation about future interest rates

Borrowers' choice behavior change due to change in the ratio of expected future interest rate over expected future income

Prime lending rate in Taiwan (1960-1997)

Disposable income, housing price, and mortgage payment

Conclusion The tilt of income stream, plays a key role on borrower choice behavior. The slope of the yield curve, is the key factor affecting mortgage choice. Income and interest rates have an interaction on mortgage choice. Downward sloping of the term structure of interest rates, low interest rate volatility, combined with the expectation of higher future payment-to-income ratio are the reason causing there are only ARMs in Taiwan's mortgage market.

Pooling Equilibrium - All borrowers choose ARMs the condition for G4 to be the equilibrium outcome is: Given r0<E(r1), we have Given r0>E(r1), we have