Why is the Market Share of Adjustable-Rate Mortgages so Low?
James I. Vickery
Federal Reserve Bank of New York
affiliation not provided to SSRN
December 1, 2010
Current Issues in Economics and Finance, Vol. 16, No. 8, December 2010
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.
Number of Pages in PDF File: 11
Keywords: mortgage, fixed-rate mortgage, adjustable-rate mortgage
JEL Classification: G00, G11, G21
Date posted: January 9, 2011