Question
You bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrowed a price
You bought a house in Los Angeles, California in 2006Q1 and the house price was $600,000. Your LTV is 95%, so you borrowed a price level adjusted mortgage (PLAM) of $570,000. Assuming that the first loan balance adjustment will occur at the end of 2009Q1. The loan term is 30 years with interest rate 6% and monthly payments.
5. What is your adjusted loan balance at the end of 2009Q1 (36 months later)?
- Which is the better choice from economic point of view and why?
- Keep the house and continue to pay mortgage every month
- Default and walk away
- What is the implication for PLAM to the recent (2007-2010) housing crisis?
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Global Banking
Authors: Roy C Smith, Ingo Walter, Gayle DeLong
3rd Edition
0195335937, 9780195335934
