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A Note on Hybrid Mortgages

26 Pages Posted: 17 Sep 2004  

Brent W. Ambrose

Pennsylvania State University

Michael LaCour-Little

California State University at Fullerton; Federal National Mortgage Association (Fannie Mae)

Zsuzsa R. Huszar

National University of Singapore; National University of Singapore (NUS) - Risk Management Institute; National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES)

Date Written: September 3, 2004

Abstract

We extend the work of Ambrose and LaCour-Little (2001) on traditional one-year adjustable rate mortgages by analyzing the performance of 3/27 hybrid instruments. Under this contract innovation, which first appeared in the mid-1990s, note rates are fixed for three years after which they convert to a traditional one-year adjustment schedule. We find high rates of prepayment, particularly at time of initial rate adjustment, and relatively high rates of default, as would be consistent with the payment shock that often affects adjustable rate loans.

Keywords: adjustable rate mortgage, prepayment, default

JEL Classification: C52, G21

Suggested Citation

Ambrose, Brent W. and LaCour-Little, Michael and Huszar, Zsuzsa R., A Note on Hybrid Mortgages (September 3, 2004). Available at SSRN: https://ssrn.com/abstract=591660 or http://dx.doi.org/10.2139/ssrn.591660

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Michael LaCour-Little

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States
202-752-3318 (Phone)

Zsuzsa R. Huszar

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

National University of Singapore (NUS) - Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

National University of Singapore (NUS) - Instiute of Real Estate Studies (IRES) ( email )

21 Heng Mui Keng Terrace
Singapore, 119613
Singapore

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