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Complex Mortgages

47 Pages Posted: 25 Nov 2010 Last revised: 5 Aug 2017

Gene Amromin

Federal Reserve Bank of Chicago

Jennifer C. Huang

University of Texas at Austin - Department of Finance

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Edward Zhong

University of Wisconsin-Madison

Multiple version iconThere are 3 versions of this paper

Date Written: August 4, 2017

Abstract

Complex mortgages became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans including interest only and negative amortization loans 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 propensities to default on their mortgages and to declare personal bankruptcy even after controlling for household and loan characteristics. Our findings suggest a link between innovations in mortgage markets focused on prime credit score borrowers and the financial crisis.

Keywords: Mortgage Contract Choice, Mortgage Default, Financial Crisis

JEL Classification: G21, D10, R21

Suggested Citation

Amromin, Gene and Huang, Jennifer C. and Sialm, Clemens and Zhong, Edward, Complex Mortgages (August 4, 2017). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1714605 or http://dx.doi.org/10.2139/ssrn.1714605

Gene Amromin

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)

Jennifer Huang

University of Texas at Austin - Department of Finance ( email )

McCombs School of Business, B6600
Austin, TX 78712
United States
512-232-9375 (Phone)
512-471-5073 (Fax)

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Edward Zhong

University of Wisconsin-Madison ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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