The Journal of Real Estate Finance and Economics

, Volume 21, Issue 2, pp 95–111

Embedded Options in the Mortgage Contract

  • Brent W. Ambrose
  • Richard J. Buttimer


Loss mitigation is the process by which lenders attempt to minimize losses associated with foreclosure. As competition increases in the mortgage industry, lenders and servicers are under great pressure to adopt loss mitigation tactics rather than simply use foreclosure as the means of dealing with borrowers in default. This study presents a mortgage-pricing model that fully specifies all borrower options with respect to default, including the ability to reinstate the mortgage out of default. We document the impact of various loss mitigation programs, including forbearance and antideficiency judgments, as well as the value of credit on borrower default behavior.

mortgage pricing models default foreclosure loss mitigation 


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Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Brent W. Ambrose
    • 1
  • Richard J. Buttimer
    • 2
  1. 1.Center for Real Estate Studies, Gatton College of Business and EconomicsThe University of KentuckyLexington
  2. 2.The University of Texas at ArlingtonArlington

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