Affordability and mortgage design: Permanent buydowns and buyups

Abstract

A simulation model that mirrors the actual practices of lenders in setting qualification requirements for mortgage loans is used to assess the impact of permanent buydowns and buyups on the maximum sale price that buyers can afford. Buydowns are reductions in the coupon rate traded off against higher discount points; buyups are the reverse. Although buydowns have little effect on afford ability, buyups can have significant effects. Their potential is largely unrealized, however, because of the call risk to lenders of loans carrying premiums. The authors propose a “discount recovery” provision, which would be similar to a prepayment penalty except that the payment upon prepayment would be tied to the amount of the discount foregone by the lender. This would protect lenders against call risk, giving them every reason to offer buyups as a way of expanding demand.     

Leader Influence and Reputation Formation in World Politics

The study of reputation is one of the foundational topics of modern international relations. However, fundamental questions remain, including the question of to whom reputations adhere: states, leaders, or both? We offer a theory of influence‐specific reputations (ISR) that unifies competing accounts of reputation formation. We theorize that reputations will adhere more to actors who are more influential in the relevant decision‐making process. We employ two survey experiments, one abstract and one richly detailed involving a U.S.‐Iran conflict, to evaluate ISR. We find evidence of large country‐specific reputations and moderately sized leader‐specific reputations. Consistent with the theory of influence‐specific reputations, leader‐specific reputations are more important when leaders are more influential.