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Suggests that a form of modified variable rate mortgage (VRM) should be the type of mortgage that is most attractive to the majority of owner‐occupiers in New Zealand. VRMs are shown to be lenders′ choice of mortgage because their traditional reliance on retail deposits and other forms of short‐term finance necessitates that their assets be of similar duration. In exchange for unilateral rate‐setting powers, lenders compensate borrowers (to a degree) with relatively low administration costs. Though it appears that the range of mortgage products available in New Zealand is now too narrow, this is beginning to be rectified by new products that offer more conservative borrowers the ability to reduce risk. Finally, analysis of historic mortgage margins indicates that there are differences between lenders. Solely on the basis of rate‐setting practice, though no lender appears to have been able to charge significantly higher margins than all of the other lenders, one institution has offered significantly lower margins.

Since the 2007–2008 financial crisis, the markets related to housing finance have been restoring their tools and instruments in order to avoid a new crisis. In this period, while attempting to eliminate structural problems in existing housing finance instruments, on the other hand new products were tried to figure out. In particular, products based on risk sharing have frequently come to the forefront, both in the academia and the industry. In this direction, one such innovative product is the participating mortgage, in which the borrower obtains below-market interest rates in return for a percentage of the property’s future appreciation and/or net operating income. Particularly used in conventional markets, participating mortgage can also be applied within the Islamic finance thanks to the model it is based on. This chapter attempts to introduce the method of participating mortgage with detailed background and intellectual investigation. Including the modeling of participating mortgage, this study also shows how this method can be designed under Islamic finance. Furthermore, implications and fields of application are explored with a discussion of challenges. In this chapter, considering the achievements of participating mortgage method, it is asserted that it can enable the product diversity of the Islamic banks, thereby increasing the share in the global banking sector.

A distinctive feature of mortgages as assets is the existence of prepayment risk, typically viewed as a borrower’s call option to pay the outstanding mortgage balance at any time during the term. While previous research identified important causes for prepayment, these studies are mostly based on fixed‐rate mortgages, with little work on variable‐rate or floating‐rate mortgages and even less work on prepayment in countries other than the USA. This paper presents an analysis of prepayment based on the historical aggregate pre‐payment experience of a sample of variable rate mortgages in Hong Kong, which func‐tions under a Currency Board Mechanism that determines exogenously the level and term structure of interest rates. With variable rate mortgages, it is expected that there will not be a prepayment incentive with decreases in interest rates, unlike the case with fixed‐rate mortgages. However, we argue that observed interest rate movements remain a key factor that affects prepayment decisions, because current interest changes influence expected future interest rates. Furthermore, drawing on quasi‐rational and behavioral economics concepts, we expect the effect on prepayment of expected upward movement in interest rates to be stronger than that of expected downward movements. Empirical evidence from the adjustable rate residential mortgage sample from Hong Kong supports these expected relationships.

The transmission of monetary policy rates to lending rates is viewed as a crucial path of monetary policy. As an integral part of the financial system and the recent financial crisis, securitized assets have the potential to affect the interest rate pass-through process and monetary policy effectiveness. This paper aims to investigate the influence of securitization on the transmission of policy rate changes to lending rates and how rate transmission has changed since the recent financial crisis. Emphasis is placed on differences among the mortgage, consumer credit and business loan securitization markets and between agency and private-label securitization transactions.

The empirical framework is an error-correction model augmented to directly measure the influence of securitization. Monetary policy effectiveness is measured by the size and speed of transmitted policy rate changes to lending rates. An efficiency measure of relative adjustment accounts for differences in the size of long-run responses across loan markets and changes in efficiency from securitization within loan markets.

The size and speed of interest rate pass-through tend to increase with securitization. Liquidity, capital relief and funding from securitization help to make lending rates more responsive. Increases in pass-through with securitization are less in the consumer credit and business loan markets after the recent financial crisis relative to before the crisis. In contrast, mortgage markets tend to have larger pass-through after the financial crisis. Differences in rate transmission after the recent financial crisis point to the role on nonbanks in consumer credit and business loans and asset purchase programs of the Federal Reserve in mortgage markets. Securitization tends to make the adjustment process more efficient, and gains in efficiency from securitization are larger after the financial crisis.

A key contribution of the study differentiates securitization across markets and types to determine the effects on the interest rate pass-through process. The results show that increases in the efficiency of the adjustment process from securitization tend to be greater in mortgage markets and for all private-label securitized assets. These findings have implications for proposed government-sponsored entity (GSE) reform to reduce the role of GSEs in the housing market, promote private-label mortgage credit and strengthen securitization deals.

In this paper, we examine dynamic relationships among three housing market variables and a stock market index in a multivariate vector autoregressive error correction (VAREC) model. It is first found that, in the USA, sales and the median sales price of the existing single‐family homes and the 30‐year mortgage rate have unit roots, while the New York Stock Exchange (NYSE) value‐weighted portfolio returns appear random. Moreover, it is found that not only are three real estate variables cointegrated with one another but that they are also cointegrated with the stock index returns. After controlling for the unit root problem and cointegration, a multivariate VAREC model is further developed to examine dynamic relationships among the four variables using Johansen’s approach. It is found that the price, mortgage rate, and stock returns affect sales. It is found that the mortgage rate and stock returns affect the price. The 30‐year mortgage rate is affected by sales and the stock returns. Except for the mortgage rate which is negatively correlated with the stock returns, significant evidence is not found that sales and the median sales price affect the stock returns directly.

The purpose of this paper is to investigate the merits of a full privatization policy of the HDB concessionary rate mortgage loans. It is believed that price competition among domestic banks will be infused and sustained, resulting in improved efficiency for the banking sector and the economy.

This paper first compares the loan interest rates of the domestic banks for HDB flat buyers to the HDB concessionary interest‐rates. Then it investigates the performance of the HDB, by assessing whether its mortgage yields are able to meet the requirements set forth by means of HDB's hurdle rates.

The findings suggest that HDB's mortgage yields are insufficient in meeting the performance standards set by the HDB, reflected by the hurdle rate. In conclusion, it is recommended that the HDB should further delegate this part of business to the private sector, where better financial performances are expected among domestic banks under competitions.

This paper is confined to mortgages subject to constant interest rates over time, despite, firstly, the availability of floating‐rate mortgages on the market, and, secondly, the quarterly revised fixed rate mortgages offered by the HDB.

While sharing some structural similarities with the USA on mortgage finance, disparities in the degree of government involvement in the mortgage market of Singapore makes it worth studying. Also, it sheds light on further studies on other nations with similar features, such as the presence of strong government support in the mortgage finance sector.

The purpose of this study is to explore the mortgage affordability problem in Ghana, an issue that has been associated inter alia with high mortgage rates, which results from the high cost of capital, an unstable macroeconomy and unfavourable borrowers’ characteristics. Concurrent improvements in both the macroeconomy and borrowers’ characteristics have rendered the identification of the most problematic mortgage pricing determinant difficult, consequently making the targeting of policy interventions problematic.

This research sought to resolve this aforementioned difficulty by providing empirical evidence on the relative importance of mortgage pricing determinants. A data set of mortgage rates of selected Ghanaian banking financial institutions from 2003 to 2013 was examined and analysed by applying Fisher’s model of interest rates and an ex post analysis of the standard regression coefficients.

The risk premium factor emerged as the most important determinant in Ghana compared with the inflation premium and the real risk-free rate, although all are statistically significant and strongly correlated with mortgage rates.

This study provides an insight on the relative importance of mortgage pricing determinates and subsequent macro-economic guidance to support policy interventions which could reduce mortgage rates/enhance mortgage affordability. The paper specifically aims to engender wider debate and provide guidance to the Ghanaian Government and/or private enterprises that seek to provide affordable mortgages. Further research is proposed which could explore ways of reducing mortgage rates as a means of engendering social equality and adopt innovative international best practice that has already been tried and tested in countries such as South Africa and the USA.

In Italy three quarters of the stock of households' mortgage debt is exposed to interest rate risk. The aim of this paper is to explain why the majority of mortgage holders in the Italian residential mortgage market have chosen a mortgage with a variable interest rate.

The empirical analysis has been carried out on a sample of 959 Italian households on the basis of data from the Survey on Household Income and Wealth by the Bank of Italy and covers the period between 1997 and 2006.

The outcomes raise some doubts about the efficiency of the Italian mortgage market in terms of risk allocation between banks and householders. Fixed rate mortgage (FRM) versus adjustable rate mortgage (ARM) choice appears to be guided by a short‐term outlook informed by the need to maximize a household's immediate utility. Furthermore, households seem to embrace a myopic perspective, since the preference for ARMs increases with the lengthening of the maturity of the mortgage and with any increase in the size of the principal amount. Also, lending policies appear to have a considerable influence on a household's FRM‐ARM choice.

It seems that the Italian mortgage market requires adequate initiatives to improve households' financial literacy. Some measures to mitigate the assumption of the interest rate risk by households would be also welcomed.

This study represents the first investigation into the relationship between lending policies of banks and householders' mortgage choice from the perspective of a country distinguished by a high and persistent preference for the adjustable rate mortgages.

The purpose of this paper is to closely examine adjustable rate mortgages (ARM) made in Northwest Louisiana in order to provide a greater understanding of the causes of the high rate of defaults and potential foreclosures currently being experienced in Louisiana.

The paper examines detailed information for all ARM recorded in a three‐month‐period.

The paper finds that at least half of the loans have highly unfavorable terms with about a third having initial rates that are at least 3 percent higher than prime mortgage rates; these initial rates are likely to increase dramatically during future adjustment periods. Many borrowers also face high interest penalties if they pay back their loans before the first adjustment period. Also notable is the fact that only 7 percent result in foreclosure. While many borrowers receive unfavorable loans, relatively few loans are held for more than six years; a probable explanation is that the borrowers realize they have agreed to less than desirable terms and subsequently decide to refinance or sell the property. The results suggest that stronger underwriting standards are an important part of developing a stable lending/housing market in the future.

The results may be applicable to other areas across the USA and internationally, perhaps resulting in more realistic lending standards and a decrease in future defaults, foreclosures, and turmoil in the financial markets.

The purpose of this paper is to forecast variability in mortgage rates by using interval measured data and interval computing method.

Variability (interval) forecasts generated by the interval computing are compared with lower‐ and upper‐bound forecasts based on the ordinary least squares (OLS) rolling regressions.

On average, 56 per cent of annual changes in mortgage rates may be predicted by OLS lower‐ and upper‐bound forecasts while the interval method improves forecasting accuracy to 72 per cent.

This paper uses the interval computing method to forecast variability in mortgage rates. Future studies may expand variability forecasting into more risk‐managing areas.

Results of this study may be interesting to executive officers of banks, mortgage companies, and insurance companies, builders, investors, and other financial decision makers with an interest in mortgage rates.

Although it is well‐known that changes in mortgage rates can significantly affect the housing market and economy, there is not much serious research that attempts to forecast variability in mortgage rates in the literature. This study is the first endeavor in variability forecasting for mortgage rates.