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Short-term residential mortgage contracts in American economic history

Jonathan Rose

Explorations in Economic History, 2021, vol. 79, issue C

Abstract: Short-term contracts were a staple of the American residential mortgage market until the Great Depression, after which policymakers pushed for longer terms in order to eliminate refinancing risk. Using a first-of-its-kind data set on mortgages outstanding in 1930, this paper suggests that short-term contracts had remained popular until the Depression because of their appeal to a class of well-off sophisticated borrowers who were undeterred by refinancing risk, and who valued flexible amortization. In contrast, typical wage earners preferred longer terms in order to eliminate refinancing risk, even as they took on the burden of regular amortization payments.

Keywords: Residential mortgages; Optimal contracts (search for similar items in EconPapers)
JEL-codes: G21 G51 N22 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.eeh.2020.101363

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