New Paper from NYU Stern Professor Says Subprime Mortgages Are ''Good''

NEW YORK--(BUSINESS WIRE)--Currently there is a huge focus on the increase in foreclosures in the U.S. sub-prime mortgage market, and many blame predatory lenders and borrowers who are ignorant of the mortgages’ terms and conditions. Professor Tchistyi and co-author Tomasz Piskorski’s (Finance Professor at Columbia) new paper finds that restricting borrowers’ access to these new sub-prime mortgages can harm the economy.

They argue that:

• New creative mortgages [an option adjustable rate mortgage (ARM), or a combination of an interest only mortgage with a home equity line of credit] are more efficient than traditional mortgages
• These new mortgages are particularly beneficial for borrowers with low, or highly volatile income, who can only afford low down-payments
• Low default rates of the past might have been economically suboptimal because many potential homebuyers were shut out of the housing market due to excessively tight underwriting standards
• By regulating access to these mortgages, financially-able consumers may not have the opportunity to enter the housing market

To arrange an interview with Professor Tchistyi, please contact Lisette Coviello in NYU Stern’s Office of Public Affairs, 212-998-4033, lcoviell@stern.nyu.edu.