Stop Tinkering with Mortgage Insurance Rules – Just Price It Right

indexBy Thorsten Koeppl, Queen’s University

The better way to use mortgage insurance is to use the existing system, but price the risks appropriately. There is currently no deductible on mortgage default losses, but the pricing of insurance does not fully consider the idiosyncratic default risk of the mortgage either. Risk-based premiums would increase the cost of the mortgages that add more risk to the housing system, since insurance costs for high risk mortgages are passed on by lenders to borrowers. Moreover, the government backstops mortgage insurers. A step in the right direction is to start charging a premium for this backstop to mortgage insurers up front, in order to pass on the potential cost of an extreme housing crisis to the mortgage industry. Notwithstanding, the premiums that are currently charged seem to grossly underestimate these costs.

Read the full post at the C.D. Howe Institute

Search, Monetary Theory, Policy and Housing Economics

amyAmy Sun, the 2014 Queen’s Economics Department Faculty Research Prize recipient, uses Search Theory to give insight into economic policy. The following article was originally published in the QED alumni newsletter. 

By Amy Sun, Queen’s University

Classical economic theory treats the transaction process as an instantaneous step. Experience from the real world, however, suggests that in many contexts this simplification is too much of an abstraction from reality.Read More »