Adjustable and fixed rate mortgages as a screening mechanism for default risk
3 Sep 2019 The initial interest rate on an adjustable-rate mortgage (ARM) is set below the market rate on a comparable fixed-rate loan, and then the rate 7 Mar 2011 Mortgages in which the contractual interest rate adjusts periodically with Fixed Rate Mortgages as a Screening Mechanism for Default Risk," option adjustable rate mortgages (Piskorski and Tchistyi, 2010); fixed rate mortgages with underwater used as a screening mechanism in this context. EL premium is driven by the higher default risk of low down payment borrowers. In the.