47 Pages Posted: 3 Dec 2010 Last revised: 20 Dec 2013
Date Written: December 19, 2013
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 propensities to default on their mortgages and to declare personal bankruptcy even after controlling for household and loan characteristics. Our analysis suggests that complex mortgages attract sophisticated borrowers who take on more risks and are more strategic in their default decisions.
Keywords: Mortgage Choice, Housing Crisis, Financial Innovation
JEL Classification: D10, G21, R0
Suggested Citation: Suggested Citation