A Note on Hybrid Mortgages

Ambrose, Brent W.; LaCour-Little, Michael; Huszar, Zsuzsa R.

doi:10.2139/ssrn.591660

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A Note on Hybrid Mortgages

26 Pages Posted: 17 Sep 2004

See all articles by Brent W. Ambrose

Michael LaCour-Little

California State University - Fullerton - Department of Finance

Zsuzsa R. Huszar

Corvinus University of Budapest; National University of Singapore ; Central European University

Date Written: September 3, 2004

Abstract

We extend the work of Ambrose and LaCour-Little (2001) on traditional one-year adjustable rate mortgages by analyzing the performance of 3/27 hybrid instruments. Under this contract innovation, which first appeared in the mid-1990s, note rates are fixed for three years after which they convert to a traditional one-year adjustment schedule. We find high rates of prepayment, particularly at time of initial rate adjustment, and relatively high rates of default, as would be consistent with the payment shock that often affects adjustable rate loans.

Keywords: adjustable rate mortgage, prepayment, default

JEL Classification: C52, G21

Suggested Citation: Suggested Citation

Ambrose, Brent W. and LaCour-Little, Michael and Huszar, Zsuzsa R. and Huszar, Zsuzsa R., A Note on Hybrid Mortgages (September 3, 2004). Available at SSRN: https://ssrn.com/abstract=591660 or http://dx.doi.org/10.2139/ssrn.591660