Federal Reserve Bank of Chicago
Jennifer C. Huang
University of Texas at Austin - Department of Finance
University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)
University of Wisconsin-Madison
April 30, 2013
AFA 2012 Chicago Meetings Paper
Complex mortgages exhibit deferred amortization and enable households to postpone loan repayment in contrast to fully amortizing traditional mortgages. Unlike the low income population targeted by subprime mortgages, complex mortgages are used by households with high income levels and prime credit scores. We find that complex mortgage borrowers exhibit relatively high delinquency rates even after controlling for household and loan characteristics. Our analysis of dynamic payment patterns, bankruptcy filings, and household characteristics suggests that complex mortgages attract sophisticated borrowers who are more strategic in their default decisions.
Number of Pages in PDF File: 52
Keywords: Mortgage Contract Choice, Strategic Default, Financial Crisis
JEL Classification: G21, D10, R21working papers series
Date posted: November 25, 2010 ; Last revised: May 3, 2013
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