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A New Approach to Mortgage Design

A New Approach to Mortgage Design

One intriguing approach has been suggested by Wayne Passmore and Alexander H. von Haften, who are economists at the Federal Reserve Board, in a working paper titled “Financing Affordable and Sustainable Homeownership With Fixed-COFI Mortgages.” Their central idea for encouraging more rapid equity growth is to trade off the borrower’s right to refinance when interest rates fall, which imposes a heavy cost on lenders, for larger principal payments.

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