Full Citation

Title: Mortgage Choices During the U.S. Housing Boom

Citation Type: Working Paper

Publication Year: 2010

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Abstract: Borrowers in cities where house prices boomed in the 2000s relied heavily on backloaded interest-only (IO) mortgages that require borrowers only to pay interest initially. We develop a theory that encompasses common explanations for IO use and show that while they can largely account for the regional variation in IOs, they cannot fully explain the concentration of IOs in booming cities. We propose a new explanation. In our model, uncertain price appreciation and no-recourse lending can lead to speculation financed with backloaded mortgages. We find evidence that IO borrowers behaved in ways consistent with such speculation.

Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1713308

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Authors: Barlevy, Gadi; Fisher, Jonas, M

Series Title: FRB of Chicago Working Paper Series

Publication Number: 2010-12

Institution: Federal Reserve Bank of Chicago

Pages: 67

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Data Collections: IPUMS USA

Topics: Housing and Segregation

Countries: United States