We extend the work of Ambrose and LaCour-Little (2001) on traditional one-year adjustable rate mortgages by analyzing the performance of 3/27 hybrid instruments. Under this contract innovation, which first appeared in the mid-1990s, note rates are fixed for three years after which they convert...

We extend previous research on traditional one-year adjustable-rate mortgages (ARMs) by analyzing the performance of 3/27 hybrid instruments. Under this contract innovation, which first appeared in the mid-1990s, note rates are fixed for three years after which they convert to a traditional...

Banks face the choice of keeping loans on their balance sheet as private debt or transforming them into public debt via asset securitization. Securitization transfers credit and interest rate risk, increases liquidity, augments fee income, and improves capital ratios. Yet many lenders still...

This paper empirically examines several open questions regarding prepayment risk in adjustable rate mortgages (ARMs), using loan-level data. Results support the teaser rate and adjustment date effects implied by the theoretical option pricing model of Kau, Keenan, Epperson and Muller (1993). In...