Working Paper: NBER ID: w1548
Authors: Patric H. Hendershott
Abstract: This paper provides a framework for pricing adjustable rate mortgages and summarizes some evidence on the prices (additions to the coupon rate) necessary to cover expected losses from binding of varios interest rate caps and from mortgage default and foreclosure. Both interst rate and default risk are shown to be heavily inluenced by the form of the mortgage instrument as well as the underlying drift and uncertainty in interest rates and house prices.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structure of the mortgage (G21) | associated risks (I12) |
| structure of the mortgage (G21) | costs incurred (M41) |
| costs incurred (M41) | pricing strategy (L11) |
| rise in interest rates (E43) | increase in defaults on uncapped ARMs (G21) |
| rise in interest rates (E43) | reduced defaults on fixed-rate mortgages (FRMs) (G21) |