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Borrower Risk under Alternative Mortgage Instruments



    Assistant Professor of EconomicsSearch for more papers by this author
    • Assistant Professor of Economics, Gordon College. I would like to thank M. Weinrobe, Chairman of my dissertation committee at Clark University, for his advice and encouragement. Partial funding for my dissertation, from which this paper was drawn, was obtained through a grant from the United States League of Savings Associations. The data utilized in this study were made available by the Inter-University Consortium for Political and Social research, and were originally collected by the Survey Research Center of the University of Michigan. None of the above bear any responsibility for the conclusions presented here.


This paper analyzes differences in borrower risk under alternative mortgage instruments and various borrower characteristics. The traditional approach of measuring borrower risk in terms of actual delinquency and foreclosure data is rejected in favor of a model based on potential delinquency—that is, changes in the mortgage payment to income ratio. The combinations of mortgage terms and borrower characteristics that are most likely to produce a potential delinquency are isolated based on the calculation of hypothetical payment to income ratios over an eight year period.

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