Turmoil in the Residential Mortgage Market, a Review and Compilation of Research and Policy

Abstract

Although the 30-year fixed rate loan is the standard in the U.S. mortgage market the interest rate risk is borne by holder of the note. This risk, and myriad other motivations fostered the development of the subprime and Alt-A instruments that together have become the bane of the housing market. Neither is likely to return as viable instruments, but the need for risk based pricing will return as the housing cycle returns. For this reason it is valuable to examine the academic research on unconventional loans as policy and future research advances.