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Subprime mortgage design

Geetesh Bhardwaj and Rajdeep Sengupta

Journal of Banking & Finance, 2012, vol. 36, issue 5, 1503-1519

Abstract: This paper offers evidence on the design of subprime mortgages as bridge-financing products. We show that the viability of subprime mortgages was uniquely predicated on the appreciation of house prices over short horizons. High rates of early prepayments on subprime mortgages suggest the use of prepayments as an exit option. This paper argues that high early defaults on post-2004 originations can be explained when one considers high early prepayment rates for pre-2004 originations.

Keywords: Mortgage design; Subprime; Refinance; Prepayment (search for similar items in EconPapers)
JEL-codes: G21 D82 D86 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:5:p:1503-1519

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