Title: A comment on mortgage procylicality

Authors: Trond-Arne Borgersen; Karl Robertsen

Addresses: Department of Business, Social Sciences and Languages, Østfold University College, 1757 Halden, Norway. ' Department of Economics, University of Agder, 4604 Kristiansand, Norway

Abstract: This paper comments on mortgage procyclicality. A framework for credit constraints along the lines of Kiyotaki and Moore (1997) is applied to illustrate a potential regime shift in the credit risk assessments of mortgagees. Depending on the relationship between house price growth and the alternative rate of return the weight given to collateral and debt-servicing ability may vary according to the house price cycle as mortgagees engage in search-for-yield. The regime shifts induced by increased global liquidity and expectations of continued housing appreciation might stimulate owner-occupation and LTV-ratios and induce mortgage procyclicality.

Keywords: mortgage procyclicality; house prices; credit constraints; credit risk assessment; collateral; debt servicing; global liquidity; housing appreciation.

DOI: 10.1504/GBER.2012.049861

Global Business and Economics Review, 2012 Vol.14 No.4, pp.274 - 282

Accepted: 21 Dec 2011
Published online: 29 Jul 2014 *

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