Document Type

Article

Language

eng

Format of Original

28 p.

Publication Date

Fall 2010

Publisher

Wiley

Source Publication

Real Estate Economics

Source ISSN

1080-8620

Abstract

Adjustable-rate and hybrid loans have been a larger component of subprime mortgage lending in the mortgage market than prime lending. The typical adjustable-rate loan in subprime is a hybrid of fixed and adjustable characteristics in which the first 2 years are fixed and the remaining 28 years adjustable. Hybrid loans terminate at elevated probabilities even before the first adjustment date. Hybrid loan terminations are sensitive to interest rates and teaser rates (payment shocks). Default probabilities increase dramatically when payment shocks are mixed with low or no equity in the home. This is the mixture of events that helped to trigger the 2007/2008 subprime mortgage crisis.

Comments

Accepted version. Real Estate Economics, Vol. 38, No. 3 (Fall 2010): 399-426. DOI. © 2010 Wiley. Used with permission.

Download

Share

COinS