SAIF Seminar Series (32)
Topic: SAIF Seminar Series (32)
Time: Friday , 2011-03-25 12:00-08:00
Venue:
Speaker: ,
Affiliations: University of Texas at Austin
Topic:
SAIF Seminar Series (32)
Time:
星期四,2011-03-25 10:30-12:00
Venue:
Room 504, Datong Building West Huaihai Road 211, SAIF
Speaker:
Jennifer Huang

Complex Mortgages

Abstract
We investigate the characteristics and the default behavior of households who take out complex mortgages. Unlike traditional fixed-rate or adjustable rate mortgages, complex mortgages are not fully amortizing and enable households to postpone loan repayment. We find that complex mortgages are used by sophisticated households with high income levels and prime credit scores, in contrast to the low income population targeted by subprime mortgages. Complex mortgage borrowers have significantly higher delinquency rates than traditional mortgage borrowers even after controlling for leverage, payment resets, and other household and loan characteristics, suggesting a role for adverse selection of borrowers into complex mortgage contracts. The difference in the delinquency rates between complex and traditional borrowers increases with measures of financial sophistication (like income or credit scores) or strategic default (like the LTV ratio). Our results suggest that complex borrowers are more strategic in their default decisions than traditional borrowers.

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