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Keywords:Adjustable rate mortgages 

Report
Payment changes and default risk: theimpact of refinancing on expected credit losses

This paper analyzes the relationship between changes in borrowers' monthly mortgage payments and future credit performance. This relationship is important for the design of an internal refinance program such as the Home Affordable Refinance Program (HARP). We use a competing risk model to estimate the sensitivity of default risk to downward adjustments of borrowers' monthly mortgage payments for a large sample of prime adjustable-rate mortgages. Applying a 26 percent average monthly payment reduction that we estimate would result from refinancing under HARP, we find that the cumulative ...
Staff Reports , Paper 562

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 ...
Working Papers , Paper 2006-042

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 ...
Public Policy Discussion Paper , Paper 12-10

Working Paper
Are adjustable-rate mortgage borrowers borrowing constrained?

Past research argues that changes in adjustable-rate mortgage (ARM) payments may lead households to cut back on consumption or to default on their mortgages. In this paper, we argue that these outcomes are more likely if ARM borrowers are borrowing constrained, and find that ARM borrowers exhibit characteristics and behavior that are consistent with being borrowing constrained. Although the demographic and financial characteristics of ARM and fixed-rate mortgage (FRM) borrowers are quite similar, ARM borrowers differ from FRM borrowers in their uses of credit and attitudes towards it. In ...
Finance and Economics Discussion Series , Paper 2011-21

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 ...
Economic Commentary , Issue Jan

Journal Article
Call to ARMS

FRBSF Economic Letter

Journal Article
Variable rate residential mortgages: the early experience from California

Economic Review , Issue Sum , Pages 5-16

Journal Article
Flexible rate?

FRBSF Economic Letter

Journal Article
Consumer guide to nontraditional mortgages published

Financial Update , Volume 19 , Issue Q 4

Journal Article
Fed publishes revised handbook on adjustable rate mortgages

Underscoring banking regulators' concerns about the growing use of nontraditional mortgages, the Consumer Handbook on Adjustable-Rate Mortgages has undergone one of its most substantial revisions since its 1987 publication.
Financial Update , Volume 20 , Issue 1

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