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.     

The intellectual legacy of J.E. Hodgetts

Abstract: J.E. (Ted) Hodgetts was influenced by both the political economy approach that he learned at the University of Toronto and by the comprehensive historical method developed by Leonard White, under whom he studied at Chicago. His first great project, Pioneer Public Service, convinced him that responsible government was impossible without responsible public administration. The authors examine how his response to management theories and practices evolved following his participation in the Glassco, Lambert and Gomery commissions. Hodgetts consistently refused the complete separation of politics and administration, and he promoted the use of management techniques to strengthen parliamentary supervision of the public service. The two key components of his legacy are thus a commitment to the democratic values of representative government and the comprehensive study of the internal dynamics of public administration in interaction with the relevant environmental factors.