Brueckner, Jan K.
[VerfasserIn]
;
Calem, Paul S.
[Sonstige Person, Familie und Körperschaft];
Nakamura, Leonard I.
[Sonstige Person, Familie und Körperschaft]
House-Price Expectations, Alternative Mortgage Products, and Default
Erschienen in:FRB of Philadelphia Working Paper ; No. 15-01
Umfang:
1 Online-Ressource (44 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.2553442
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 1, 2014 erstellt
Beschreibung:
Rapid house-price depreciation and rising unemployment were the main drivers of the huge increase in mortgage default during the downturn years of 2007 to 2010. However, mortgage default was also associated with an increased reliance on alternative mortgage products such as pay-option and interest-only adjustable rate mortgages (ARMs), which allow the borrower to defer principal amortization. The goal of this paper is to better understand the forces that spurred use of alternative mortgages during the housing boom and the resulting impact on default patterns, relying on a unifying conceptual framework to guide the empirical work. The conceptual framework allows borrowers to choose the extent of mortgage “backloading,” the postponement of loan repayment through various mechanisms that constitutes a main feature of alternative mortgages. The model shows that, when future house-price expectations become more favorable, reducing default concerns, mortgage choices shift toward alternative products. This prediction is confirmed by empirical evidence showing that an increase in past house-price appreciation, which captures more favorable expectations for the future, raises the market share of alternative mortgages. In addition, using a proportional-hazard default model, the paper tests the fundamental presumption that backloaded mortgages are more likely to default, finding support for this view