The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages
, and were underwritten using rigorous credit standards and enhanced risk controls.
We carry out a similar analysis on a subsample of conventional fixed-rate amortizing mortgages.
Fixed-rate amortizing mortgages only Builder-affiliate -0.5 -0.25 -0.29 indicator (-5.0) ** (-3.4) ** (-2.6) ** Macro, loan, and Yes Yes Yes borrower controls Observations 2,807,941 1,409,667 1,398,274 Pseudo R-squared 0.260 0.228 0.251 Failure rate 0.96 0.404 1.52 Default in the first 24 months Year of origination 2001-08 2001-04 2005-08 Panel A.
In our sample, such contracts accounted for 25 percent of homebuilder loans originated during 2005-08.12 The distinguishing characteristic of non-amortizing contracts is that they allow the borrower to make a lower payment initially compared with, say, a conventional fixed-rate amortizing mortgage. The ability to lower early payments is particularly pronounced in the case of the so-called negative amortization (or option ARM) contracts that allow payments to be less than the interest charges.
"We're starting to see an increase in delinquency rates in our IO book of business," Smith says, and the delinquency rates are rising faster than for the fixed-rate, 30-year amortizing mortgages. United Guaranty does not insure option ARMs.
The majority of the growth in the low-payment mortgages--eight percentage points of the 32 percent--has not come from option ARMs or from IOs, but from 40-year and higher-term amortizing mortgages, according to Feldstein.
Both lender and borrower preferences are pushing the market toward long-term amortizing mortgages, says Feldstein.
KHFC has been instrumental in the government's stated goal to raise the proportion of fixed-rate and amortizing mortgages
. In 2015, its assets grew significantly, resulting in a deterioration of its capitalization.
While 40-year mortgages are amortizing mortgages
, they spread the amortization over a longer period, so that in the initial years the portion of the payment dedicated to principal is lower than it would be with a 30-year mortgage.
Because many of the new mortgage products put less emphasis on building equity than did traditional, fully amortizing mortgages
, Americans have lower levels of equity in their homes than ever before (see Figure 2).
If you look at Fannie and Freddie, they are very competitive for the 10-year point on the curve, but if you go out to 35 or 40 years on the curve, the FHA is competitive at that level for fully amortizing mortgages