The Rise and Fall of the Arm: An Econometric Analysis of Mortgage Choice

Jan K. Brueckner · James R. Follain

182 citations0/0 files storedThe Review of Economics and Statistics

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Housing Market and Economics Banking stability, regulation, efficiency Financial Literacy, Pension, Retirement Analysis

Abstract

This paper estimates an empirical model of the choice between adjustable- and fixe d-rate mortgages using a large national database compiled by the Nat ional Association of Realtors. The explanatory variables in the probi t choice equation include borrower characteristics, regional dummies, the FRM rate, and the FRM-ARM rate differential. Since the intrerest rate on the mortgage not chosen is unobserved, this rate must be est imated in a way that eliminates selectivity bias. Simulation of the e stimated choice equation provides insight into the origin of the ARM revolution. Copyright 1988 by MIT Press.

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References

1978Unionism and Wage Rates: A Simultaneous Equations Model with Qualitative and Limited Dependent Variables 1979Inflation, Mortgage, and Housing 1987Choosing Between Fixed and Adjustable Rate Mortgages: Note

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