Search Results
Journal Article
Adjustable-rate mortgages and the Libor surprise
Adjustable-rate mortgages have typically been tied to either of two indexes, one based on U.S. treasuries, the other on the London interbank offered rate, or Libor. The index is used to determine a mortgage?s new interest rate when it is reset, and up until recently, the choice would have made little difference. But since 2007, the rates on which the indexes are based have diverged sharply, and borrowers with Libor-based adjustable-rate mortgages are likely to pay more than they would have had their mortgages been tied to treasuries. Moreover, the proportion of Libor-based ARMs has increased ...
Which Households Prefer ARMs vs. Fixed-Rate Mortgages?
Adjustable-rate mortgages appear to be more popular with younger, higher-income households that also have bigger mortgages, according to 2019 data.
Discussion Paper
Payment size, negative equity, and mortgage default
Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced large rate reductions over the past years and are largely immune to these selection concerns. We show that interest rate changes dramatically affect repayment behavior. Our estimates imply that cutting a borrower?s payment in half reduces his hazard of becoming delinquent by about two-thirds, an effect that is ...
Report
Payment size, negative equity, and mortgage default
Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced substantial rate reductions over the past years and are largely immune to these selection concerns. We find that payment size has an economically large effect on repayment behavior; for instance, cutting the required payment in half reduces the delinquency hazard by about 55 percent. Importantly, the link between ...
Journal Article
Housing specialists
Journal Article
Call to ARMS
Journal Article
Flexible rate?
Journal Article
Consumer guide to nontraditional mortgages published
Working Paper
The termination of subprime hybrid and fixed rate mortgages
Adjustable rate and hybrid loans have been a large and important component of subprime lending in the mortgage market. While maintaining the familiar 30-year term the typical adjustable rate loan in subprime is designed as a hybrid of fixed and adjustable characteristics. In its most prevalent form, the first two years are typically fixed and the remaining 28 years adjustable. Perhaps not surprisingly, using a competing risks proportional hazard framework that also accounts for unobserved heterogeneity, hybrid loans are sensitive to rising interest rates and tend to temporarily terminate at ...