Abstract
Among all the academic mortgage studies, this paper is the first one to present a mortgage-pricing model that especially specifies the process of foreclosure delay in adjustable-rate mortgages. Essentially, we use a bivariate binomial options pricing technique to value the probability of default and also the time to default in both adjustable-rate mortgages and fixed-rate mortgages. Then, an in-depth comparison is made between these two types of mortgages.We further document the impact of the probability of deficiency judgment, the default penalty to reinstate, the value of credit cost, as well as the reset period on mortgagor default behavior.