Why is the Market Share of Adjustable-Rate Mortgages so Low?

11 Pages Posted: 9 Jan 2011

See all articles by Emanuel Moench

Emanuel Moench

Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)

James I. Vickery

Federal Reserve Bank of Philadelphia

David Aragon

affiliation not provided to SSRN

Date Written: December 1, 2010

Abstract

Over the past several years, U.S. homebuyers have increasingly favored fixed-rate mortgages over adjustable-rate mortgages (ARMs). Indeed, ARMs have dropped to less than 10 percent of all residential mortgage originations, a near-record low. One might speculate that the decline in the ARM share has been driven by "one-off" factors relating to the financial crisis. However, a statistical analysis suggests that recent trends can largely be explained by the same factors that have historically shaped mortgage choice - most notably, the term structure of interest rates and its effects on the relative price of different types of mortgages. Supply-side factors, in particular a rise in the share of mortgages eligible to be securitized by the housing government-sponsored enterprises, also play a role in the low current ARM share.

Keywords: mortgage, fixed-rate mortgage, adjustable-rate mortgage

JEL Classification: G00, G11, G21

Suggested Citation

Moench, Emanuel and Vickery, James Ian and Aragon, David, Why is the Market Share of Adjustable-Rate Mortgages so Low? (December 1, 2010). Current Issues in Economics and Finance, Vol. 16, No. 8, December 2010, Available at SSRN: https://ssrn.com/abstract=1736208 or http://dx.doi.org/10.2139/ssrn.1736208

Emanuel Moench (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

James Ian Vickery

Federal Reserve Bank of Philadelphia ( email )

10 Independence Mall
Philadelphia, PA 19106
United States
+12155746549 (Phone)

HOME PAGE: http://www.vickeryjames.com

David Aragon

affiliation not provided to SSRN ( email )

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