CMOs, Duration Risk and a New Mortgage
This article presents an alternative mortgage that retains the fixed-rate feature of a fixed-rate mortgage (FRM), but accelerates the principal amortization when interest rates rise, exposing the buyer to less duration risk in a rising interest rate environment. This mortgage, labeled the adjustable amortization mortgage (AAM), is shown to have lessened interest rate risk for the buyer as well as lower default risk, suggesting that it should be priced higher (at a lower rate of interest) than the typical FRM. It is also shown that mortgage-backed securities collateralized by an AAM have much less price volatility than mortgage-backed securities backed by FRMs.
Volume (Year): 19 (2000)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: |
Web page: http://www.aresnet.org/
|Order Information:|| Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323|
Web: http://pages.jh.edu/jrer/about/get.htm Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Richard Stanton & Nancy Wallace, 1998. "Mortgage Choice: What's the Point?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 173-205.
- Haensly, Paul J & Springer, Thomas M & Waller, Neil G, 1993. "Duration and the Price Behavior of Fixed-Rate Level Payment Mortgages: An Analytical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 6(2), pages 157-66, March.
- James B. Kau & Thomas M. Springer, 1993. "An Analysis of Financial and Nonfinancial Prepayment of GNMA Securities with a Varying Coefficient Model," Journal of Real Estate Research, American Real Estate Society, vol. 8(1), pages 69-86.
- Wayne R. Archer & David C. Ling, 1993. "Pricing Mortgage-Backed Securities: Integrating Optimal Call and Empirical Models of Prepayment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 373-404.
- László Szerb, 1996. "The Borrower's Choice of Fixed and Adjustable Rate Mortgages in the Presence of Nominal and Real Shocks," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(1), pages 43-54.
- J. Sa-Aadu, 1987. "Consumer Welfare Under the Adjustable-Rate Mortgage: Some Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 132-151.
- Gary A. Anderson & Joel R. Barber & Chun-Hao Chang, 1993. "Prepayment Risk And The Duration Of Default-Free Mortgage-Backed Securities," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(1), pages 1-9, 03.
- Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
- Sam R. Hakim, 1997. "Autonomous and Financial Mortgage Prepayment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 1-16.
- Kau, James B, et al, 1993. "Option Theory and Floating-Rate Securities with a Comparison of Adjustable- and Fixed-Rate Mortgages," The Journal of Business, University of Chicago Press, vol. 66(4), pages 595-618, October.
When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:19:n:1:2000:p:73-103. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (JRER Graduate Assistant/Webmaster)
If references are entirely missing, you can add them using this form.