The termination of subprime hybrid and fixed rate mortgages

Giang Ho and Anthony Pennington-Cross

No 2006-042, Working Papers from Federal Reserve Bank of St. Louis

Abstract: 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 much higher rates when the loan transforms into an adjustable rate. However, these terminations are dominated by prepayments not defaults.

Keywords: Mortgages; adjustable-rate mortgages (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-fmk and nep-ure
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Related works:
Journal Article: The Termination of Subprime Hybrid and Fixed‐Rate Mortgages (2010)
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DOI: 10.20955/wp.2006.042

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