Review of Finance Vol. 22 No. 6 2018
Complex Mortgages
Abstract
Complex mortgages became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans, including interest-only and negative-amortization mortgages, enable households to postpone loan repayment in contrast to fully amortizing traditional mortgages. Contrary to common perception, complex mortgages are used by households with high-income levels and prime credit scores, quite unlike the low-income population targeted by subprime mortgages. Nonetheless, we find that complex-mortgage borrowers become delinquent on their mortgages at rates twice as high as borrowers with plain-vanilla fixed-rate contracts even after controlling for household and loan characteristics. Our findings suggest a link between innovations in mortgage markets focused on prime borrowers and the financial crisis.
- DOI
- 10.1093/rof/rfy016
- Volume
- 22
- Issue
- 6
- Pages
- 1975-2007
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref