Complex Mortgages

Posted: 15 Jul 2021

See all articles by Gene Amromin

Gene Amromin

Federal Reserve Bank of Chicago

Jennifer Huang

affiliation not provided to SSRN

Clemens Sialm

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

Edward Zhong

affiliation not provided to SSRN

Multiple version iconThere are 4 versions of this paper

Date Written: 2010

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 (interest only, negative amortization, and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. At the same time, they increase household leverage and heighten dependence on mortgage refinancing to escape changes in contract terms. We document that complex mortgages were chosen by prime borrowers with high income levels seeking to purchase expensive houses relative to their incomes. Borrowers with complex mortgages experience substantially higher ex post default rates than borrowers with traditional mortgages with similar characteristics.

Suggested Citation

Amromin, Gene and Huang, Jennifer and Sialm, Clemens and Zhong, Edward, Complex Mortgages (2010). FRB of Chicago Working Paper No. WP-2010-17, Available at SSRN: https://ssrn.com/abstract=3887190

Gene Amromin (Contact Author)

Federal Reserve Bank of Chicago ( email )

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

Jennifer Huang

affiliation not provided to SSRN

No Address Available

Clemens Sialm

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

affiliation not provided to SSRN

No Address Available

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