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Complex Mortgages

Gene Amromin (), Jennifer Huang, Clemens Sialm () and Edward Zhong

No 17315, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the characteristics and the default behavior of households who take out complex mortgages. Unlike traditional fixed rate or adjustable rate mortgages, complex mortgages are not fully amortizing and enable households to postpone loan repayment. We find that complex mortgages are used by sophisticated households with high income levels and prime credit scores, in contrast to the low income population targeted by subprime mortgages. Complex mortgage borrowers have significantly higher delinquency rates than traditional mortgage borrowers even after controlling for leverage, payment resets, and other household and loan characteristics. The difference in the delinquency rates between complex and traditional borrowers increases with measures of financial sophistication and leverage, suggesting that complex borrowers are more strategic in their default decisions than traditional borrowers.

JEL-codes: E60 G01 G10 H31 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
Note: AP CF PE
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Published as Gene Amromin & Jennifer Huang & Clemens Sialm & Edward Zhong, 2018. "Complex Mortgages*," Review of Finance, vol 22(6), pages 1975-2007.

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Working Paper: Complex mortgages (2010) Downloads
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