Transferring home price risk to investors from individual borrowers
Abstract
Purpose
The purpose of this paper is to outline a new approach to risk management that will create an innovative marketplace mechanism to deal with risk.
Design/methodology/approach
The paper discusses current risk management practice and proposes a novel new approach to risk management with an example.
Findings
This paper proposes the creation of a restructured mortgage product to transfer the home price volatility risk explicitly to investors and portfolio managers.
Originality/value
This paper proposes product innovation to transfer risk. The idea is original and is a conceptual viewpoint aimed at urging the industry to implement the concept. The recent credit crisis highlights the problem of unhedged home price volatility born by individual borrowers. As borrowers are not equipped to hedge this risk, it is important to restructure the mortgage to explicitly transfer the risk of home price volatility to investors and mortgage lenders.
Keywords
Citation
Sharma, D. (2010), "Transferring home price risk to investors from individual borrowers", Journal of Risk Finance, Vol. 11 No. 4, pp. 416-423. https://doi.org/10.1108/15265941011071548
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited