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Complex Mortgages

Year: 2011
Type: report
Study design: Observational Study
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.
DOI: 10.3386/w17315
Institutions: National Bureau of Economic Research, Vanderbilt University, University of Zurich, Federal Reserve Bank of Chicago, The University of Texas at Austin, University of Lausanne, Cheung Kong Graduate School of Business, University of Wisconsin–Madison
Language: English
Open Access status: green
OpenAlex ID: W4237246263
Cites: 62
Cited by: 49
Related to: 10