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Drivers of mortgage choices by risky borrowers

Author

Listed:
  • Frederick T. Furlong
  • David Lang
  • Yelena Takhtamanova

Abstract

During the past decade?s housing boom, borrowers with lower credit ratings were more likely than higher-rated borrowers to choose adjustable-rate mortgages. This raises the question of whether, amid rapidly rising house prices, lower-rated borrowers paid less attention to loan pricing and interest-rate-related factors. However, even accounting for house price appreciation, research shows these borrowers were as, if not more, responsive as higher-rated borrowers to changes in interest-rate-related fundamentals. Their tendency to choose adjustable-rate mortgages is consistent with mortgage decisions based on economic considerations, rather than just lack of financial sophistication

Suggested Citation

  • Frederick T. Furlong & David Lang & Yelena Takhtamanova, 2014. "Drivers of mortgage choices by risky borrowers," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00003
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    File URL: http://www.frbsf.org/economic-research/publications/economic-letter/2014/january/factors-lower-credit-rating-borrowers-adjustable-rate-mortgage/el2014-01.pdf
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    References listed on IDEAS

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    1. Frederick T. Furlong & Yelena Takhtamanova, 2012. "Did the housing boom affect mortgage choices?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov5.
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