Are adjustable-rate mortgage borrowers borrowing constrained?

Kathleen W. Johnson and Geng Li

No 2011-21, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Past research argues that changes in adjustable-rate mortgage (ARM) payments may lead households to cut back on consumption or to default on their mortgages. In this paper, we argue that these outcomes are more likely if ARM borrowers are borrowing constrained, and find that ARM borrowers exhibit characteristics and behavior that are consistent with being borrowing constrained. Although the demographic and financial characteristics of ARM and fixed-rate mortgage (FRM) borrowers are quite similar, ARM borrowers differ from FRM borrowers in their uses of credit and attitudes towards it. In addition, we find the consumption growth of households with an ARM is more sensitive to past income than the consumption growth of other households, suggesting the ARM borrowers are more likely subject to borrowing constraints that hinder their ability to smooth consumption.

Keywords: adjustable-rate mortgages; Mortgage loans; Consumer credit; Consumer behavior (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Are Adjustable-Rate Mortgage Borrowers Borrowing Constrained? (2014)
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