Mortgage Innovation, Mortgage Choice, and Housing Decisions

This article has two objectives. The \u85rst is to examine some of the new mortgage prod-ucts that have appeared in the mortgage market in recent years. We illustrate how these products di¤er across important characteristics such as the downpayment requirement, re-payment structure, and amortization schedule. The second objective is to present a model which has the potential to analyze the implications for various mortgage contracts for individ-ual households as well as addresses many of the issues currently facing the housing market. In this paper, we use the model to examine the implications of alternative mortgages for homeownership.We utilize the model to show that both ARM style mortgages and combo loans can help explain the rise and fall in homeownership that we have witnessed since 1994.