Journal of Finance Vol. 76 No. 2 2021

Financial Fragility with SAM?

Daniel L. Greenwald^{1,2,3,4,5,6,7,8,9}; Tim Landvoigt^{1,2,3,4,5,6,7,8,9}; Stijn Van Nieuwerburgh

¹ HEC Montréal · ² Conference Board · ³ Federal Reserve Board of Governors · ⁴ University of Chicago · ⁵ Federal Reserve Bank of Philadelphia · ⁶ Massachusetts Institute of Technology · ⁷ Federal Reserve Bank of St. Louis · ⁸ University of Pennsylvania · ⁹ Bank of Canada

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.

DOI

10.1111/jofi.12992

Volume

76

Issue

2

Pages

651-706

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓