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Housing Tenure and Mortgage ChoiceElaine FortowskyFederal National Mortgage Association (Fannie Mae) Michael LaCour-LittleCalifornia State University at Fullerton Eric RosenblattFederal National Mortgage Association (Fannie Mae) - Research Vincent YaoFederal National Mortgage Association (Fannie Mae) September 29, 2010 Journal of Real Estate Finance and Economics, Vol. 42, No. 2, 2011 Abstract: This paper examines the relationship between housing tenure and mortgage contract. We present a model showing that, given expected mobility, borrowers will have incentive to self-select into the appropriate mortgage product such that their fixed-rate period is directly related to their probability of moving. We empirically test this hypothesis using housing tenure data derived from a large national database of repeat mortgage transactions. After controlling for borrower characteristics, the mobility hazards of 3/1, 5/1 and 7/1 ARMs, compared to a 30-year fixed rate, are estimated to be 28%, 14% and 11% higher, respectively.
Keywords: Mortgage choice, Contract design, Housing tenure, Household mobility Accepted Paper SeriesDate posted: October 1, 2010Suggested CitationContact Information
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