The Termination of Subprime Hybrid and Fixed Rate Mortgages
Marquette University - Dept. of Finance
affiliation not provided to SSRN
FRB of St. Louis Working Paper No. 2006-042A
Adjustable rate and hybrid loans have been a large and important component of subprime lending in the mortgage market. While maintaining the familiar 30-year term the typical adjustable rate loan in subprime is designed as a hybrid of fixed and adjustable characteristics. In its most prevalent form, the first two years are typically fixed and the remaining 28 years adjustable. Perhaps not surprisingly, using a competing risks proportional hazard framework that also accounts for unobserved heterogeneity, hybrid loans are sensitive to rising interest rates and tend to temporarily terminate at much higher rates when the loan transforms into an adjustable rate. However, these terminations are dominated by prepayments not defaults.
Number of Pages in PDF File: 38
Keywords: Mortgage, default, prepayment, subprime, adjustable Rate, hybrid
JEL Classification: G21, D14, R29working papers series
Date posted: July 17, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.343 seconds