Residential Mortgage Selection, Inflation Uncertainty, and Real Payment Tilt

Don MacDonald and Kimberly Winson-Geideman

Journal of Real Estate Research, 2012, vol. 34, issue 1, 51-72

Abstract: This study addresses prime and subprime residential mortgage selection in an inflationary environment. Using data from the Mortgage Bankers Association on the proportion of variable rate mortgages closed for the 1994 through 2007 period, the findings show that higher anticipated inflation held with certainty increases the proportion of adjustable-rate mortgage (ARM) originations, while greater inflation uncertainty in the sense of a Diamond-Stiglitz (1974) mean-preserving spread decreases it. Further, the percentage of subprime ARM originations is significantly decreased with greater inflation uncertainty while the impact on prime ARM originations is statistically insignificant. These results are consistent with the hypothesis that prime borrowers hold a valuable exchange option that subprime borrowers do not (i.e., the opportunity to refinance into an alternative mortgage product, if necessary).

Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10835547.2012.12091324 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rjerxx:v:34:y:2012:i:1:p:51-72

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rjer20

DOI: 10.1080/10835547.2012.12091324

Access Statistics for this article

Journal of Real Estate Research is currently edited by William Hardin and Michael Seiler

More articles in Journal of Real Estate Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().