Complex Mortgages

54 Pages Posted: 29 Aug 2011 Last revised: 24 Apr 2023

See all articles by Gene Amromin

Gene Amromin

Federal Reserve Bank of Chicago

Jennifer C. Huang

University of Texas at Austin - Department of Finance

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Edward Zhong

University of Wisconsin-Madison

Multiple version iconThere are 4 versions of this paper

Date Written: August 2011

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. The difference in the delinquency rates between complex and traditional borrowers increases with measures of financial sophistication and leverage, suggesting that complex borrowers are more strategic in their default decisions than traditional borrowers.

Suggested Citation

Amromin, Gene and Huang, Jennifer Chunyan and Sialm, Clemens and Zhong, Edward, Complex Mortgages (August 2011). NBER Working Paper No. w17315, Available at SSRN: https://ssrn.com/abstract=1918645

Gene Amromin (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
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Jennifer Chunyan Huang

University of Texas at Austin - Department of Finance ( email )

McCombs School of Business, B6600
Austin, TX 78712
United States
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512-471-5073 (Fax)

Clemens Sialm

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Edward Zhong

University of Wisconsin-Madison ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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