SEMINAR SERIES No. 12/1415
Finance
Mortgage Foreclosures and Securitisation
Dr. John Chi-Fong Kuong
Assistance Professor of Finance
INSEAD
Abstract
The US is undergoing an epidemic of mortgage foreclosures. We investigate the optimal foreclosure policy of delinquent mortgages in a model of mortgage-backed securitisation under asymmetric information. In equilibrium securitisers with high quality mortgage pools issue debt and signal their type by costly retention of junior securities. We show it is optimal for a securitiser to commit to an expost value-destroying foreclosure policy to reduce the signalling cost. The optimal foreclosure policy, which can be implemented by contracting with a third-party mortgage servicer, features higher foreclosure rates for mortgage pools of poor quality, implying a countercyclical aggregate foreclosure rate and procyclical repossessed property prices.
Date: December 12, 2014 (Friday)
Time: 11:00~12:30
Venue: Faculty of Business Administration, E22-3015
A Short Biography of Dr. Kuong
Dr. Kuong serves as Assistant Professor at INSEAD. He got his Ph.D. in Finance in London School of Economics, his MSc in Financial Economics in Toulouse School of Economics and his BBA in Economics in University of Macau. His research interests include theories of financial intermediation and banking, corporate finance, financial regulation.
