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.     

Would a Value‐Added System of Retention Improve the Distribution of Teacher Quality? A Simulation of Alternative Policies

In this paper, we consider several features of teacher‐retention policies based on value‐added measures of effectiveness under a variety of empirically grounded rules and parameters. We consider the effects of policy design by varying the standard above which satisfactory teachers are expected to perform. We simulate recently adopted policies that remove teachers based on consecutive unsatisfactory performance and compare these to policies that remove teachers based on poor performance on average over a multiyear period. We also consider the precision of the performance measure and the underlying variation in teacher quality on policy effects. Finally, the simulation makes a step forward by incorporating recent empirical findings of a relationship between teacher quality and natural attrition from the profession. Our results indicate that deselection policies based on value‐added measures have the potential to improve teacher quality, although understanding the role of policy design, self‐selected exits, and the underlying variation in teacher quality is essential for determining policy effects.     

The Effects of Uncontested Elections on Legislator Performance

Political competition lies at the core of representative democracy. Yet, uncompetitive elections and uncontested races are widespread in the United States, particularly at the state level. In this article, we analyze the consequences of uncontested elections on lawmaking activity. Our primary hypothesis is that legislators who run unopposed are less active lawmakers than those who were selected through competitive elections. Studying roll‐call vote participation and bill introduction and enactment for most of the U.S. states for 1999–2000, we find that state legislators elected in unopposed elections perform more poorly compared to their colleagues elected in competitive contests.