Are Adjustable-Rate Mortgage Borrowers Borrowing Constrained?
Real Estate Economics, Forthcoming
Posted: 27 Nov 2012
There are 2 versions of this paper
Are Adjustable-Rate Mortgage Borrowers Borrowing Constrained?
Date Written: November 27, 2012
Abstract
Past research argues that changes in adjustable-rate mortgage (ARM) payments may lead households to cut back on consumption. These outcomes are more likely if ARM borrowers are borrowing constrained, and we show in this paper that ARM borrowers exhibit attitudes towards borrowing and behavior that are consistent with being borrowing constrained. Although the demographic and financial characteristics of ARM and fixed-rate mortgage (FRM) borrowers are somewhat similar, ARM borrowers differ from FRM borrowers in their uses of credit and attitudes towards it. In addition, we find the consumption growth of households with an ARM is more sensitive to past income than the consumption growth of other households, suggesting the ARM borrowers may be subject to borrowing constraints that hinder their ability to smooth consumption.
Keywords: Adjustable-Rate Mortgage, Credit Constraints, Consumption Smoothing
JEL Classification: E21, G21
Suggested Citation: Suggested Citation