Abstract
THIS PAPER IS concerned with the role of interest rates, down-payments, and contract maturities in the allocation of mortgage funds among borrowers. It has been widely observed that decreases in interest rates on mortgage and other consumer loans' are often accompanied by decreases in average down-payments and increases in average contract maturities.2 The most popular explanation for this association is one variant of the credit-rationing hypothesis that might best be called the multiple-term hypothesis. Lenders, so this argument goes, do not ration funds solely on the basis of price-the interest rate-but also on the basis of other conditions of the loan, requiring higher down-payments or shorter maturities than (some) borrowers would prefer to arrange at the quoted interest rate. When either the demand for loans falls or supply increases, lenders may reduce rates charged but also allow borrowers more generous terms in the form of lower downpayments or longer maturities.8 Likewise, according to this argu-
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