Traditional mortgages were financed mainly by depository institutions with very short-term funds, even though a mortgage is a very long-term instrument. This mismatch of maturities was solved with the:

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Adjustable-rate mortgages (ARMs) were introduced as a solution to the mismatch of maturities. ARMs adjust the interest rate periodically, aligning the cost of borrowing more closely with current market rates. This helps lenders manage the risk associated with funding long-term loans with short-term deposits.

Traditional Mortgages Were Financed Mainly by Depository Institutions with Very