Housing Tenure and Mortgage Choice

Posted: 1 Feb 2009 Last revised: 30 Sep 2011

Elaine Fortowsky

Federal National Mortgage Association (Fannie Mae)

Michael LaCour-Little

California State University at Fullerton

Eric Rosenblatt

Federal National Mortgage Association (Fannie Mae) - Research

Vincent W. Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: February 1, 2009

Abstract

This paper studies the relationship between housing tenure and mortgage contract. We show that over a limited horizon, 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 the hypothesis based on actual housing tenure computed from a random sample of a large national database of repeat mortgage sales. We find that, after controlling for borrower characteristics, the hazards of 3/1, 5/1 and 7/1 ARMs, compared to FRM30, are predicted to be 28%, 14% and 11% higher respectively, while that of 10/1 ARMs is 9% lower.

Keywords: mortgage contract, housing tenure

JEL Classification: L85, R51

Suggested Citation

Fortowsky, Elaine and LaCour-Little, Michael and Rosenblatt, Eric and Yao, Vincent W., Housing Tenure and Mortgage Choice (February 1, 2009). Journal of Real Estate Finance and Economics, Vol. 42, No. 2, pp 162-180, 2011. Available at SSRN: https://ssrn.com/abstract=1336032

Elaine Fortowsky

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Michael LaCour-Little

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Eric Rosenblatt

Federal National Mortgage Association (Fannie Mae) - Research ( email )

16517 Keats Terrace
Derwood, MD 20855
United States

Vincent W. Yao (Contact Author)

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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