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Bhutta, N., Dokko, J. and Shan, H. (2010) The Depth of Negative Equity and Mortgage Default Decisions. Division of Research & Statistics and Monetary Affairs, Federal Reserve Board.

has been cited by the following article:

• TITLE: A Real Options Approach to Distressed Property Borrower-Lender Reconciliation

  AUTHORS: David J. Moore, Nuriddin Ikromov

  KEYWORDS: Real Option, Real Estate, Restructure, Distressed Property, Market Value

  JOURNAL NAME: Journal of Mathematical Finance, Vol.5 No.1, February 25, 2015

  ABSTRACT: We propose a real option framework to value distressed properties and restructure their loans. Our approach reconciles the interests of borrowers and lenders through a constrained optimization model yielding mutually beneficial restructure terms. Borrowers receive lower loan balances and payments, while lenders replace non-performing loans with performing loans that have higher market values. A numerical illustration shows that the market value of a restructured loan can exceed that of the original non-performing loan and the post-foreclosure cash flows when the lender repossesses the property.