A Note on Hybrid Mortgages

26 Pages Posted: 17 Sep 2004

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Michael LaCour-Little

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

Zsuzsa R. Huszar

National University of Singapore ; Central European University

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

Federal National Mortgage Association (Fannie Mae) ( email )

1100 15th St NW
Washington, DC 20005
United States
202-752-3318 (Phone)

California State University at Fullerton ( email )

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

Zsuzsa R. Huszar

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

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