Abstract
After the financial crisis have been arisen from the subprime mortgage since 2007, the credit risk issue becomes more important than before. The crisis began with high default rate of mortgage products which resulted from house price slumped. The default occurs in two aspects, no willingness to pay and no ability to pay. "Willingness to pay" is concerned with the collateral value and "ability to pay" is concerned with household income and monthly payment variation. Prior literature indicates that most analyses focus on no willingness to pay. However, the default occurs due to not merely collateral value fluctuation but the payment shock. In other words, estimating the credit risk of the mortgage products should consider the payment shock, the trade of house price, interest rate and household income. This study chooses some mortgage products to compare their credit risk including traditional and non-traditional ones. The credit risk is invisible and hard to measure. To find a proxy to estimate the credit risk is a must. By simulating the cash flow of these mortgage products and computing two risk indexes, probability of negative equity (PnegQ) and probability of liquidity shortage in mortgage payment (PSHORT), we could make a fairy approximation toward the credit risk. The results show that subprime mortgage products would easily induce default in stress-level economy and HAPNs, a financial innovation, would help stabilize the house market