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Why is the market share of adjustable-rate mortgages so low?

Diego Aragon, James Vickery () and Emanuel Moench ()

Current Issues in Economics and Finance, 2010, issue dec

Abstract: Over the past several years, U.S. homebuyers have increasingly favored fixed-rate mortgages over adjustable-rate mortgages (ARMs). Indeed, ARMs have dropped to less than 10 percent of all residential mortgage originations, a near-record low. One might speculate that the decline in the ARM share has been driven by ?one-off? factors relating to the financial crisis. However, a statistical analysis suggests that recent trends can largely be explained by the same factors that have historically shaped mortgage choice?most notably, the term structure of interest rates and its effects on the relative price of different types of mortgages. Supply-side factors, in particular a rise in the share of mortgages eligible to be securitized by the housing government-sponsored enterprises, also play a role in the low current ARM share.

Keywords: Interest rates; Mortgages; Economic surveys; Households - Economic aspects; Adjustable rate mortgages (search for similar items in EconPapers)
Date: 2010
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