Wharton-SMU Research Center

In-House Seminar

Guest Speaker:
Susan WACHTER
Professor of Real Estate, Finance and City and Regional Planning, The Wharton School, University of Pennsylvania

Date & Venue:
Date: 21 May 2004, Friday
Time: 3.00pm-4.45pm
Venue: Eu Tong Sen Building, Level 1, Seminar Room 3,
Singapore Management University
469 Bukit Timah Road, Singapore 259756
(Location Map)

Topic:

Real Estate Crashes and Bank Lending

About the Seminar:
This paper analyzes the role that non-recourse bank lending plays in generating boom and bust cycles in real estate. The ability to default on a loan represents a put option written by the lender and owned by the borrower. Rational economic behavior typically dictates that lenders charge the borrower for the imbedded put option through higher interest rates, origination fees, or mortgage insurance. In this paper, the speaker discusses the conditions that lead lenders to rationally underprice the put option imbedded in non-recourse lending and analyze the impact of put option underpricing on asset prices.
They find an underpricing equilibrium in which all lenders rationally choose to underprice the put option. This underpricing results in inflated asset prices, compression in the spread between lending and deposit rates, lending booms and real estate crashes.

Chairperson:
Winston T. H. KOH
Associate Professor of Economics, School of Economics and Social Sciences, Singapore Management University

Registration:
This seminar is free. Please register early. (Admission on a first-come-first-served basis.)
For registration, please click here (Registration closes on 20 May 2004, Thursday)

Enquiries:

Ms. Lim Lih Yeng
Email: lylim@smu.edu.sg, Tel: 6822-0197
Ms. Priscilla Cheng
Email: priscillacheng@smu.edu.sg, Tel: 6822-0383