Login

Create Account
+14156709189
info@expertsmind.com
Submit Homework/Assignment
Get quote & make Payment
Get Solution
economics, Mathematics
A mortgage lender seeks to maximize the expected value of its portfolio. The portfolio, of course, is the
sum of all of the mortgages in it, so no generality is lost by examining the case of one loan:
E[port] = (1p).B +p.(VL)
where:
_ E[port] is the expected value of the portfolio
_ p is the probability of foreclosure
_ B is the principal balance
_ V is the sale price at foreclosure
_ L is the legal fees incurred by foreclosure
Assume that the borrower’s probability of foreclosure is an increasing function of his/her ”balanceto value ratio” (i.e. B/V):
P ? p (B/V) P’>0
In other words, borrowers who are deeper underwater are more likely to enter the foreclosure process. In such cases, reducing principal balances would reduce foreclosurerelated losses (by reducing the probability of foreclosure). On the other hand, principal balance reductions are a direct loss for the lender.
1. Derive the marginal benefit of reducing principal balances.
2. Derive the marginal cost of reducing principal balances.
3. What is the necessary condition for maximizing E[port] with respect to the principal balance?
4. What is the sufficient condition for maximizing E[port]?
5. How does the marginal benefit curve shift in response to an increase in L?
6. How does the marginal cost curve shift in response to an increase in L?
7. How does the optimal principal balance change when L increases?
Posted Date: 12/20/2012 11:16:12 AM  Location : United States
Ask an Expert
Related Discussions:
economics, Assignment Help, Ask Question on economics, Get Answer, Expert's Help, economics Discussions
Write discussion on economics
Your posts are moderated
Write your message here..
Related Questions
Conic sections, The locus of the midpoint of the chords of an ellipse which...
The locus of the midpoint of the chords of an ellipse which are drawn through an end of minor axis is called
Round 468.235 to the nearest hundredth, Round 468.235 to the nearest hundre...
Round 468.235 to the nearest hundredth ? The hundredths place is the second digit to the right of the decimal point (3). To decide how to round, you must like as at the digit t
PreCalculus, Which point is the reflection through the origin (0, 0) of th...
Which point is the reflection through the origin (0, 0) of the point (8, 9)?estion..
Relative motion, how to find the minimum distance between any two particles...
how to find the minimum distance between any two particles which are in relative motion?
Mount everest is 29, Mount Everest is 29,028 ft high. Mount Kilimanjaro is ...
Mount Everest is 29,028 ft high. Mount Kilimanjaro is 19,340 ft high. How much taller is Mount Everest? Subtract Mt. Kilimanjaro's height from Mt. Everest's height; 29,028  19
.., the circumference of a circle C of radius r is given by C=2pR.taking p ...
the circumference of a circle C of radius r is given by C=2pR.taking p to be 22/7 a)find the circumference when the radius is 28 cm b)find the radius when the circumference is 484
Determine a trigonometric function, At rest, the human heart beats once eve...
At rest, the human heart beats once every second. At the strongest part of the beat, a person's blood pressure peaks at 120mmHg. At the most relaxed part of the beat, a person's bl
Geometry , solve for x and y 2x+3y=12 and 30x+11y=112
solve for x and y 2x+3y=12 and 30x+11y=112
Total linear attenuation, Consider the task of identifying a 1 cm thick bre...
Consider the task of identifying a 1 cm thick breast cancer that is embedded inside a 4.2 cm thick fibroglandular breast as depicted in Fig. The cancerous tumor has a cross
Percentage, of all those survey 390 were under 18 years of age if 20%were 1...
of all those survey 390 were under 18 years of age if 20%were 18, how many responded to the survey
Assignment Help
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
IT Courses and Help
ExpertsMind Services
Online Tutoring
Projects Assistance
Exam Preparation
Coursework Help
Programming Courses
Engineering Courses
Why Us ?
~Experienced Tutors
~24x7 hrs Support
~Plagiarism Free
~Quality of Work
~Time on Delivery
~Privacy of Work