TY  - JOUR
AU  - Shiller,Robert J.
AU  - Wojakowski,Rafal M.
AU  - Ebrahim,M. Shahid
AU  - Shackleton,Mark B.
TI  - Continuous Workout Mortgages
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17007
PY  - 2011
Y2  - May 2011
UR  - http://www.nber.org/papers/w17007
L1  - http://www.nber.org/papers/w17007.pdf
N1  - Author contact info:
Robert J. Shiller
Yale University, Cowles Foundation
Box 208281
30 Hillhouse Avenue
New Haven, CT  06520-8281
Tel: 203/432-3708
Fax: 203/432-6167
E-Mail: robert.shiller@yale.edu

Rafal M. Wojakowski
Lancaster University
Management School,
Department of Accounting and Finance
Lancaster LA1 4YX
United Kingdom
E-Mail: r.wojakowski@lancaster.ac.uk

M. Shahid Ebrahim
Bangor Business School
Hen Goleg, College Road
Bangor LL57 2DG
United Kingdom
E-Mail: m.s.ebrahim@bangor.ac.uk

Mark B. Shackleton
Lancaster University
Management School,
Department of Accounting and Finance
Lancaster LA1 4YX
United Kingdom
E-Mail: m.shackleton@lancaster.ac.uk
AB  - Continuous Workout Mortgage (CWM) balance and payments are indexed using market-observable house price index in an economic environment with prepayments. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulas for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.
ER  -