Sunday, October 27, 2019
Literature Review on Mortgage Default
Literature Review on Mortgage Default Literature review The evolution of mortgage default studies is characterized by Quercia and Stegman (1992) into three types of studies. The earliest work dating back to the 1970s focuses from a lenders perspective on simple correlations and regression models capturing important borrower characteristics that can forecast bankruptcy. Home equity, income variability, loss of employment, death, and divorce are found to be the most important predictors of default risk (Von Furstenberg, 1969; Herzog and Early, 1970; Vandell, 1978). The second generation of default research, rooted in consumer behavior theory, models the behavior of households, who rationally decide to default, in a more structural way. Papers by Jackson and Kasserman (1980), Campbell and Dietrich (1983), and Foster and Van Order (1984) explicitly formulate net-equity maximization models of default. Such `ruthless default models predict immediate default if a propertys value drops a small margin below the level of the mortgage. These models emphasize the financial aspects of the mortgage default decision, ignoring borrowers characteristics. Towards the start of the 1990s, several models began examining transaction costs and crisis events that may delay, expedite, or eliminate the need to default. Quigley and Van Order (1992) find that transaction and reputation costs make the default option on mortgages less ruthless than in other frictionless financial markets. While transaction costs by themselves do not explain observed behavior, reputation costs in particular are consistent with observed default behavior. These second-generation studies constitute the basis for the current state of the theory. The examination of the default decision as an option and the central role of net equity constitute the dominant view in studies of default. Conceptually, the basic theory postulated by second-generation studies has not been revised since. The recent financial crisis has stimulated a revival of the academic interest in mortgage default, and the birth of a third generation of research models. Specifically, there have been attempts to integrate mortgage default into more general equilibrium models of consumer behavior. Campbell and Cocco (2014) model mortgage foreclosures structurally and find negative equity, borrowing constraints, high debt-to-income ratios and income growth as important determinants of foreclosure. Goodhart et al. (2011) and Foote et al. (2008) use a two-period model to show that households choose to default and lose their homes to foreclosure, if the net implicit rents from owning plus the expected net equity position over their tenure horizon is negative. They find that expected house price appreciation, and the size of the mortgage payment are the main factors in determining default. Corradin (2012) builds a life-cycle continuous-time model of household leverage and default in which the agents opti mally choose the down-payment, abstracting from inflation and interest rate risk. Garriga and Schlagenhauf (2009) also solve an equilibrium model of long-term mortgage choice and default to understand how leverage affects the default decision. Forlati and Lambertini (2011), the closest paper to this thesis, builds an infinite-horizon DSGE model with housing, risky mortgages and endogenous default. They introduce idiosyncratic risk in housing investment and the possibility for loans to be defaulted on, which results in an endogenous borrowing constraint exactly as the one for firms in Bernanke, Gertler, and Gilchrist (1999). Their model does not feature any penalties for the households that choose to default. This assumption is unrealistic, as in the United States as well as in other countries, defaulters incur reputation and credit score penalties which affect their possibility to borrow in the future, in addition to collateral losses. Hence, introducing non-pecuniary default penalties is useful when thinking about an equilibrium with default. The Forlati and Lambertini (2011) model also does not include a financial sector, therefore the financial accelerator mechanism is absent, in particular the banking side. There is no role for negative feedback loops operating through the banking sector as rising bad loan books and bank insolvencies, amplified by a liquidity crisis, can lead to a sharp credit contraction. This thesis builds a model incorporating some of these missing links. The literature review indicates a continued interest in mortgage default. While most empirical studies are well-advanced in their discoveries of the determinants of default, the theoretical literature is lagging behind developing models able to capture these determinants. I attempt to bridge the gap between the empirical determinants of default and the theory, by constructing a dynamic optimization model of borrower choice with housing market frictions and endogenous mortgage default, that will feature default centered around negative net equity, reputation penalties, and house valuation shocks. Refining the current DSGE models with the introduction of financial and micro-founded consumer behavior frictions is essential for the study of business cycles and financial stability. Theoretical Model This thesis builds a DSGE model drawing on a number of contributions in the literature on credit markets, housing markets, and debt default. The starting point is a model with financial frictions on the demand-side for credit (i.e. Kiyotaki and Moore, 1997; Iacoviello and Neri, 2010), to which I add a housing sector, a financial sector and endogenous debt default. The idea of default comes from the asset pricing literature, which allows for the existence of default as an equilibrium phenomenon (Dubey et al., 2005; Geanakoplos and Zame, 2013). A stylized representation of the model is depicted in Figure ref{fig8}. The economy operates in discrete time over an infinite horizon and combines five elements: 1) two types of households, namely textit{savers} and textit{borrowers}, who consume manufactured goods, accumulate housing, and work; 2) a financial sector collecting deposits and extending collateralized mortgages; 3) a large set of real (consumption habits, adjustment costs) and nom inal (price and wage) rigidities; 4) financing frictions in the housing and financial sector; and 5) a rich set of shocks, essential in taking the model to the data. The economy is populated by patient (savers) and impatient (borrowers) households. Patient households consume, accumulate housing stock, save, and work. They own the productive capital of the economy, and supply capital funds to firms on the one hand, and deposits to banks on the other. Impatient households consume, accumulate housing stock, borrow from banks, and work. Both patient and impatient households supply labor services through labor unions, which set their wages subject to a Calvo scheme. On the supply side, the non-housing sector combines labor and capital to produce consumption and business capital for both sectors. The construction sector produces new homes combining labor and land with business capital. The two groups of households have different discount factors. Discount factor heterogeneity between households induces heterogeneity in the marginal utility of saving across households. All else equal, borrowers have a lower $beta^*$ and a higher marginal utility of immediate consumption relative to savers, inducing a desire to trade inter-temporally. Borrowers obtain collateralized mortgages from banks, while savers have a high discount factor $beta$ and invest their resources into bank deposits. The availability of loans to borrowers is subject to a borrowing constraint linked to the market value of their housing stock and the ability of the lending banks to extend credit. Borrowers can experience negative housing value shocks that are only observed by the households themselves. When the value of their house falls below the value of their loan repayment, they choose to default on part of their mortgage. Default on secured debt is modeled through the partial loss of collateral and a non-pecuniary default penalty that enters the utility function of the households directly. In case of default, borrowers lose some of their housing stock which is repossessed by the bank, suffer a non-pecuniary default penalty, and re-enter the housing market in the next period as buyers again. Default is endogenously determined and, consistent with the literature on second-generation default models, triggered by shocks that are large enough to cause leveraged households to owe on their house more than the house is worth. Borrowers and savers are unable to directly write financial contracts. They do so through financial intermediaries. The financial sector is simply market-based: banks borrow from savers in order to give loans to borrowers. In this way, I layer two sets of financial frictions that interact in equilibrium: first, banks are constrained in how much they can borrow from ultimate savers, and second ultimate borrowers are constrained in how much they can borrow from the banks. Monetary policy is conducted by a central bank which faces a trade-off between output gap and inflation stabilization. The model provides a framework to understand the impact of house price fluctuations, monetary policy, demand shocks, and credit availability on the economy and the ways in which financial regulation can dampen boom and bust cycles in the housing market.
Friday, October 25, 2019
The Great Pyramid Essay -- essays research papers
Outline     Thesis Statement: The Great Pyramid is a mystery to the modern age, even though its purpose, uses, history, and condition have challenged explorers for centuries it will always be considered one of the greatest wonders of the world. 1.     Why was the Great Pyramid built? A.     Who built the Great Pyramid? B.     Why was it built? C.     Comparative theories. 2.     What was the Great Pyramid used for? A.     Religious uses. B.     Astronomical uses. C.     Environmental uses. 3.     How was the Great Pyramid built? A.     Workers. B.     Dimensions. C.     Surrounding community. Why the Great Pyramid of Giza was built is a question that has been challenging archeologists, philosophers, and historians for hundreds of years. What we do know is that the Egyptians built it during the fourth dynasty under the rule of King Khufu in the area known as Giza. (i) The amount of people that it took to build such a massive structure has been the subject of dispute for hundreds of years. The Greek historian Herodotus believed that it took one hundred thousand workers over a twenty-year period to build the great pyramid, but recent archaeologists using modern calculations believe that the pyramid was built by four thousand primary laborers and sixteen to twenty thousand secondary workers but also over a twenty year time period. (ii)      There are many competing theories on why the great pyramid was built, none of them are definite but all of them are interesting. Many other pyramids have been built in the Middle East but none of the same stature. Other pyramids have been found to be burial chambers for various kings and pharaohs, but the Great Pyramid contained no burial remnants even though its essential design is the same as other pyramids, even containing special chambers for a king and a queen. (iii) Modern day scientists have discovered many interesting correlations between the location and dimensions of the Great Pyramid, that relate to the earth, the stars, and the seasons. (iv)      Several controversies have risen over the last hundred years about the reasons for the building of the Great Pyramid. Some theories believe that the Great Pyramid was built by or aided by alien beings because of the precise nature of its location and dimensions. While others believe that, the pyramid represented a symbol of ultimate power for t... ...tration along with metalworkers, joiners, painters, and draughtsmen because of various workshops found in the ruins. (xvi) It has been thought that feeding these armies of workers were extensive bakeries because bread mold from the same period has also been uncovered. (xvii) All these discoveries are the main reason why it is believed that this great giant of a structure was built out of national pride, by volunteers and not by slave labor as previously theorized. When one looks at the overall task and complexity of building this Great Pyramid, it certainly will always remain one of the greatest accomplishments of humankind. Bibliography 1. "Pyramid." Encyclopedia Britannica. 2003. Encyclopedia Britannica Premium Service. 27 Sep, 2003 . 2. â€Å"Egyptians.†British Broadcasting Service. 2003. British Broadcasting Service Interactive. 26 Sep, 2003 3. â€Å"Excavations at Giza 1988 – 1991.†University of Chicago. 1992. Oriental Institute, University of Chicago. 26 Sep, 2003 4. â€Å"Q&A with Dr. Kent Weeks.†The Learning Channel. 2003. The Learning Channel Online. 26 Sep, 2003 5. â€Å"Great Pyramid Facts and Statistics.†Egyptian Pyramids Index. 2001. Crystalinks. 27 Sep, 2003 The Great Pyramid Essay -- essays research papers Outline     Thesis Statement: The Great Pyramid is a mystery to the modern age, even though its purpose, uses, history, and condition have challenged explorers for centuries it will always be considered one of the greatest wonders of the world. 1.     Why was the Great Pyramid built? A.     Who built the Great Pyramid? B.     Why was it built? C.     Comparative theories. 2.     What was the Great Pyramid used for? A.     Religious uses. B.     Astronomical uses. C.     Environmental uses. 3.     How was the Great Pyramid built? A.     Workers. B.     Dimensions. C.     Surrounding community. Why the Great Pyramid of Giza was built is a question that has been challenging archeologists, philosophers, and historians for hundreds of years. What we do know is that the Egyptians built it during the fourth dynasty under the rule of King Khufu in the area known as Giza. (i) The amount of people that it took to build such a massive structure has been the subject of dispute for hundreds of years. The Greek historian Herodotus believed that it took one hundred thousand workers over a twenty-year period to build the great pyramid, but recent archaeologists using modern calculations believe that the pyramid was built by four thousand primary laborers and sixteen to twenty thousand secondary workers but also over a twenty year time period. (ii)      There are many competing theories on why the great pyramid was built, none of them are definite but all of them are interesting. Many other pyramids have been built in the Middle East but none of the same stature. Other pyramids have been found to be burial chambers for various kings and pharaohs, but the Great Pyramid contained no burial remnants even though its essential design is the same as other pyramids, even containing special chambers for a king and a queen. (iii) Modern day scientists have discovered many interesting correlations between the location and dimensions of the Great Pyramid, that relate to the earth, the stars, and the seasons. (iv)      Several controversies have risen over the last hundred years about the reasons for the building of the Great Pyramid. Some theories believe that the Great Pyramid was built by or aided by alien beings because of the precise nature of its location and dimensions. While others believe that, the pyramid represented a symbol of ultimate power for t... ...tration along with metalworkers, joiners, painters, and draughtsmen because of various workshops found in the ruins. (xvi) It has been thought that feeding these armies of workers were extensive bakeries because bread mold from the same period has also been uncovered. (xvii) All these discoveries are the main reason why it is believed that this great giant of a structure was built out of national pride, by volunteers and not by slave labor as previously theorized. When one looks at the overall task and complexity of building this Great Pyramid, it certainly will always remain one of the greatest accomplishments of humankind. Bibliography 1. "Pyramid." Encyclopedia Britannica. 2003. Encyclopedia Britannica Premium Service. 27 Sep, 2003 . 2. â€Å"Egyptians.†British Broadcasting Service. 2003. British Broadcasting Service Interactive. 26 Sep, 2003 3. â€Å"Excavations at Giza 1988 – 1991.†University of Chicago. 1992. Oriental Institute, University of Chicago. 26 Sep, 2003 4. â€Å"Q&A with Dr. Kent Weeks.†The Learning Channel. 2003. The Learning Channel Online. 26 Sep, 2003 5. â€Å"Great Pyramid Facts and Statistics.†Egyptian Pyramids Index. 2001. Crystalinks. 27 Sep, 2003
Thursday, October 24, 2019
Nature of Humanity Portrayed in Hamlet Essay
â€Å"The destiny of man is to become progressively less human and more humane, less compulsive and more creative, less instinctive and more intuitive, less material and more spiritual. Man’s destiny is to always become more fully divine. †Hamlet shows human nature to be greedy, self-involved and vengeful. Claudius is driven by his own greed to commit murder. Polonius is always looking out for himself. Hamlet thinks of vengeance from the moment he finds out about Claudius killing his father. Human nature has been all of these things, but it has also changed through the ages. We can be cruel, but we can also show great compassion and kindness. Claudius kills his own brother so that he can claim the crown and the Gertrude. He gets rid of a good king to satisfy his greed. He kills his own brother, the good of the country, and the happiness of most of the characters in the play to fulfill his desire of being king. He cares only for himself. Most people at one point or another will be driven by greed. Most humans will not have the desperation that Claudius shows in Hamlet. Greed is part of all everyone. It’s just they way people choose to deal with that feeling or if they feel is what separates many from Claudius. They see something they want and they tell themselves that it is only what they deserve. It is inevitable but we can control it to a certain degree I think. Polonius shows the characteristic of human nature that is self-concern. He is always looking for ways to get closer to the king. He sacrifices his own daughter’s happiness so that he can prove his theories about Hamlet’s madness to the king. Self-concern is another trait that humans cannot seem to avoid. People are constantly thinking about themselves and how things are going to affect their lives. They care deeply for their own well being. Certainly they think about others occasionally, but their own person is always number one in their minds. Vengefulness is yet another human trait. Hamlet’s entire character is changed by his revenge. He starts out as a calm smart young man but the need for vengeance corrupts him, where he is driven only by his need for pay back. Hamlet shows how the desire for vengeance that humans experience can completely change a persons very being, making them totally single-minded. Every person experiences a need for revenge in his or her life but the power to resist that feeling shows a lot more. In the beginning when man lived in caves and used rocks for tools. During this time man had no use for emotions or how his actions would affect someone else, just the will to survive. Man’s nature was to protect himself and his family, and to just live. As man has changed so has his nature. For a certain period human nature involved greed, self-concern, and vengeance. But man has come a long way since then. Along with change came a wanting for learning and justice. I think Shakespeare was trying to show us is how basic human nature is and that acting spontaneously on those emotions does not solve anything. I believe when you grow older and learn upon your decisions many find that doing the opposite of these instinctive feelings prove to have better outcomes. So I do agree that human nature is instinctively and inherently bad but you have the potential to change that.
Tuesday, October 22, 2019
Environmental Pollution Concerns Come To Forefront Essays
Environmental Pollution Concerns Come To Forefront Essays Environmental pollution concerns come to forefront Reports that the state finds El Dorado Irrigation District's drinking water system primitive, outdated and an avenue for hazardous pollutants sent El Dorado County residents scrambling for more information Wednesday. The message that pregnant, elderly and sick residents should boil their water or buy it bottled was buried in fine print in the 28,000 notices mailed in September to EID customers. Dozens of residents called EID offices Wednesday after The Bee obtained a copy of a state report showing photographs of manure piles, animal carcasses, mats of algae and other contaminants in and near EID's open reservoirs. "That article made me a firm believer that I'm not crazy," said Sue Reimer, who was seven months pregnant in 1996 when she was diagnosed with giardia, a water-borne virus that causes intestinal problems. The El Dorado engineer said she was drinking only EID water and lots of it, at her doctor's suggestion. There's no confirmed connection between EID's water and illness in El Dorado County, county officials say. The problem at EID, state health officials say, is that after the district filters water drawn from the American River, it stores the water in small reservoirs open to the elements. Most other water districts use closed steel or concrete tanks. Only a few other California water districts currently store treated water in open reservoirs, including those in McCloud, Santa Barbara, Montecito, Carpinteria and Los Angeles. None of those has as many as the 11 used in EID. The El Dorado reservoir water consistently meets state health standards on bacteria, EID officials say, because the district constantly bubbles chlorine from nearby tanks into the reservoirs and sends the water on to homes. But they admit their open reservoirs expose the water to contamination by disease-causing agents for which there are no health standards or required testing in small water districts: giardia, viruses and cryptosporidium. "We are more vulnerable because they are not covered," said Marjie Lopez Read, EID water quality superintendent, "even though the treatment is complete at the water plants." William Hetland, EID general manager, said the district hasn't ignored the problem of covered reservoirs. Several years ago, he said, it began buying rubberized membrane covers for the reservoirs. Seven had already been installed when, in July, the California Department of Health Services ordered the district to either build steel tanks or put concrete lids on all of its reservoirs. The rubber covers, the state decided after a 1997 investigation, allow too much contamination of treated water by animals, vegetation and rain. "We've been addressing this problem," said Hetland. "Maybe not as fast as they'd like, but we have been addressing the problem." Until 1990, he said, the district didn't even filter its water. It simply pumped American River water to the reservoirs and treated it with chlorine. The state put EID on a four-year schedule to cover its reservoirs, a job that EID board member Raymond Larsen estimated would cost $30 million to $40 million and force the district, with an annual water supply budget of $10 million, to raise rates 50 percent. The state also ordered the district to advise customers that if they're elderly, pregnant, ill, HIV-positive, undergoing cancer therapy or otherwise suffering from a compromised immune system, they should either use bottled water or boil their water. A flier titled "EID News from the Water Front" was mailed to all customers and sent home with school children, Hetland said. But several residents said they either didn't notice it or didn't realize its significance. The warning about boiling water appeared on the third page. "I never saw this notice," said resident Reimer. "I always look." To back up its enforcement order, the Department of Health Services prepared a vividly photographed report that didn't circulate much beyond the EID board of directors. It shows bird droppings, dead frogs and birds, beer bottles, the footprints of human swimmers, runoff from horse and cattle pastures and animal skeletons in the reservoirs. "If an infected cow, while grazing, defecates into the drinking water stored in this reservoir," states the caption to one photo in the report, "the water becomes contaminated with literally millions of Cryptosporidium organisms." Water quality experts
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