Analyzing Shared Responsibility Mortgages: An Economics Essay

This economics essay delves into the concept of shared responsibility mortgages as an alternative to traditional debt contracts, addressing the negative externalities that arise from the latter. It argues that shared responsibility mortgages can mitigate risks for homeowners and prevent boom-and-bust cycles in the housing market. The essay critiques securitization, suggesting that it can lead to favoritism and instability, and posits that shared responsibility mortgages, which cannot be securitized, offer a more stable and equitable solution. By tying mortgage obligations more closely to home prices, the author suggests a path towards a more sustainable housing market, cautioning against solely relying on mortgages, which can create unsustainable bubbles. Ultimately, the essay advocates for a careful and balanced approach to mortgage and housing policies to benefit the economy and society as a whole. Desklib offers a platform to explore similar assignments and resources.

Economics Assignment 1
Economics Assignment
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Economics Assignment 2
Question 1
Using the concept of externalities, the author statement means that the private parties
which could be regarded as the third parties incur some cost that they are not responsible for. In
other words, the private parties are getting the consequence of the debts contracts; they are
enduring these consequences yet they are very much unrelated with the cost since they lack
control over the factors that are responsible for creating the specific cost (Jensen, 2018, pp 24).
Therefore, the author is simply trying to imply that out of the research that has been done, third
parties (private) they are suffering a cost because of the economic transaction and in this case the
transaction is the debt contracts.
Question 2
Shared responsibility helps mitigate the negative externalities of a debt contract since as
a new home mortgage product is of advantage over debt mortgage. The economic benefits of the
shared responsibility mortgage may not be equated in the pricing of the private market because
of the externalities. Therefore, according to the author and the research done, the debt contracts
have a large negative externality. For instance, a case where there is foreclosure, the owner of the
house is forced to bear all the losses when the price of the houses goes down (Hacker and
O'Leary, 2012, pp18). Thus, a whole neighbourhood can be made well if the homeowner and the
lender come to terms on shared responsibility mortgage instead of the debt mortgage. Therefore,
the new mortgage should be promoted.
Question 3
Securitization is the process in which specific types of assets are pooled so that a
repackaging can be done to achieve interest-bearing securities (Parrott, 2017, pp 14). The

Economics Assignment 3
payments on the principal and the interest from the different assets are given over to those who
purchase securities. Tilting of the field happens when common securitization collects and
performs verification of data to make sure that the pool level and the relevant loan data are
provided, manage the offering documentation, form and register the securities and finally market
utilities. As all these processes happen the different fields are tilted such that some other parties
are favoured over the other. Therefore, ‘shared responsibility’ as a form of home mortgage
product is advisable for it cannot be securitized and thus is not subject to favouritism.
Question 4
The author simply means that there is a sense in which making the price of the house
solely rely on Mortgage will make the economy unstable at one given time. when we have
unsustainable bubbles, it means that the rate of inflation is higher than the rate of the prices of
homes (Aalbers, 2016, pp 12). Thus, to ensure that bubbles do not occur then the mortgages
should be tied explicitly to the prices of the homes or houses. If it is to be tied then it should only
be on a partial basis but not explicitly. According to Aalbers, (2016, pp 34), in handling interest
rates, whatever goes low ultimately goes high, and as interest rates start moving to levels that are
normal it could cause problems for home prices that is why mortgage should not be tied
explicitly to house prices.
In conclusion, it is apparent that mortgage and house pricing are among the
contemporary at the same time hot topics of this present age that needs to be handled with
ultimate care. It is prudent that such topics are brought to the table and discussed in a manner
that will be beneficial to the whole society but largely to the economy.

Economics Assignment 4
Bibliographies
Aalbers, M.B., 2016. The financialization of home and the mortgage market crisis. In the
Financialization of Housing (pp. 40-63). Routledge.
Hacker, J. and O'Leary, A. eds., 2012. Shared responsibility, shared risk: government, markets
and social policy in the twenty-first century. OUP USA.
Jensen, A., 2018. Do People Respond to the Mortgage Interest Deduction? Quasi-Experimental
Evidence from Denmark.
Parrott, J., 2017. The Common Securitization Platform.