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Article
The Termination of Subprime Hybrid and Fixed Rate Mortgages
Real Estate Economics
  • Anthony Pennington-Cross, Marquette University
  • Giang Ho, University of California - Los Angeles
Document Type
Article
Language
eng
Format of Original
28 p.
Publication Date
10-1-2010
Publisher
Wiley
Abstract

Adjustable-rate and hybrid loans have been a larger component of subprime mortgage lending in the mortgage market than prime lending. The typical adjustable-rate loan in subprime is a hybrid of fixed and adjustable characteristics in which the first 2 years are fixed and the remaining 28 years adjustable. Hybrid loans terminate at elevated probabilities even before the first adjustment date. Hybrid loan terminations are sensitive to interest rates and teaser rates (payment shocks). Default probabilities increase dramatically when payment shocks are mixed with low or no equity in the home. This is the mixture of events that helped to trigger the 2007/2008 subprime mortgage crisis.

Comments

Accepted version. Real Estate Economics, Vol. 38, No. 3 (Fall 2010): 399-426. DOI. © 2010 Wiley. Used with permission.

Citation Information
Anthony Pennington-Cross and Giang Ho. "The Termination of Subprime Hybrid and Fixed Rate Mortgages" Real Estate Economics (2010) ISSN: 1080-8620
Available at: http://works.bepress.com/anthony_pennington_cross/32/