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Why is the Market Share of Adjustable-Rate Mortgages so Low?

11 Pages Posted: 9 Jan 2011  

Emanuel Moench

Deutsche Bundesbank

James I. Vickery

Federal Reserve Bank of New York

David Aragon

affiliation not provided to SSRN

Date Written: December 1, 2010

Abstract

Over the past several years, U.S. homebuyers have increasingly favored fixed-rate mortgages over adjustable-rate mortgages (ARMs). Indeed, ARMs have dropped to less than 10 percent of all residential mortgage originations, a near-record low. One might speculate that the decline in the ARM share has been driven by "one-off" factors relating to the financial crisis. However, a statistical analysis suggests that recent trends can largely be explained by the same factors that have historically shaped mortgage choice - most notably, the term structure of interest rates and its effects on the relative price of different types of mortgages. Supply-side factors, in particular a rise in the share of mortgages eligible to be securitized by the housing government-sponsored enterprises, also play a role in the low current ARM share.

Keywords: mortgage, fixed-rate mortgage, adjustable-rate mortgage

JEL Classification: G00, G11, G21

Suggested Citation

Moench, Emanuel and Vickery, James I. and Aragon, David, Why is the Market Share of Adjustable-Rate Mortgages so Low? (December 1, 2010). Current Issues in Economics and Finance, Vol. 16, No. 8, December 2010. Available at SSRN: https://ssrn.com/abstract=1736208 or http://dx.doi.org/10.2139/ssrn.1736208

Emanuel Moench (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

James Ian Vickery

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

David Aragon

affiliation not provided to SSRN ( email )

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