Download or read book Competing Risks of Mortgage Termination written by Andrey D. Pavlov and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Why, when, and who terminates their mortgages? The primary reasons for mortgage termination are refinancing, selling of the property, and default. This paper is the first to explicitly model these competing risks within a unified conceptual framework and provide a link between theoretical value maximizing mortgage termination models and empirical estimation. I find, for instance, that the refinancing risk is highly sensitive to interest rate changes and other variables capturing the value of the mortgage. On the other hand, the necessity to relocate, either through sale of the property or default, is sensitive to the local economic conditions but largely independent of the value of the mortgage.
Download or read book The Contingent Claims and Competing Risks for Mortgage Termination by Prepayment and Default written by Yongheng Deng and published by . This book was released on 1995 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Mortgage Termination written by Yongheng Deng and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a unified economic model of the contingent claims and competing risks of mortgage termination by prepayment and default. I adopt a proportional hazard framework to analyze these competing and interdependent risks in a model with time-varying covariates. The paper incorporates a binomial mean-reverting interest rate model into the hazard function for prepayment. The empirical results reported in the paper provide new evidence about the ruthlessness of default and prepayment behavior and the sensitivity of these decisions to demographic as well as financial phenomena. The results also illustrate that evaluating the interest rate contingent claims with a stochastic term structure has effects not only on predicting the mortgage prepayment behavior but also on predicting the mortgage default behavior.
Download or read book Mortgage Terminations Heterogeneity and the Exercise of Mortgage Options written by John M. Quigley and published by . This book was released on 2005 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount. Our analysis: tests the extent to which the option approach can explain default and prepayment behavior; evaluates the practical importance of modeling both options simultaneously; and models the unobserved heterogeneity of borrowers in the home mortgage market. The paper presents a unified model of the competing risks of mortgage termination by prepayment and default, considering the two hazards as dependent competing risks which are estimated jointly. It also accounts for the unobserved heterogeneity among borrowers, and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions.Our results show that the option model, in its most straightforward version, does a good job of explaining default and prepayment; but it is not enough by itself. The simultaneity of the options is very important empirically in explaining behavior. The results also show that there exists significant heterogeneity among mortgage borrowers. Ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners.
Download or read book Mortgage Terminations Heterogeneity and the Exercise of Mortgage Options written by Yongheng Deng and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount. Our analysis: tests the extent to which the option approach can explain default and prepayment behavior; evaluates the practical importance of modeling both options simultaneously; and models the unobserved heterogeneity of borrowers in the home mortgage market. The paper presents a unified model of the competing risks of mortgage termination by prepayment and default, considering the two hazards as dependent competing risks which are estimated jointly. It also accounts for the unobserved heterogeneity among borrowers, and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions. Our results show that the option model, in its most straightforward version, does a good job of explaining default and prepayment; but it is not enough by itself. The simultaneity of the options is very important empirically in explaining behavior. The results also show that there exists significant heterogeneity among mortgage borrowers. Ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners.
Download or read book Unobserved Heterogeneity in Models of Competing Mortgage Termination Risks written by John M. Clapp and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends unobserved heterogeneity to the multinomial logit model (MNL) framework in the context of mortgages terminated by refinance, move or default. It tests for the importance of unobserved heterogeneity when borrower characteristics such as income, age and credit score are included to capture lender-observed heterogeneity. It does this by comparing the proportional hazard model (PHM) to MNL with and without mass-point estimates of unobserved heterogeneous groups of borrowers. The mass point mixed hazard model (MMH) yields larger and more significant coefficients for several important variables in the move model, whereas the MNL model without unobserved heterogeneity performs well with the refinance estimates. The MMH clearly dominates the alternative models in-sample and out-of-sample. However, it is sometimes difficult to obtain convergence for the models estimated jointly with mass points.
Download or read book Essays on Mortgage Risk written by Alan J. Neale and published by . This book was released on 2012 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contributes three essays in areas of mortgage risk that are rapidly growing in importance. The first essay develops a fully dynamic optimization model for a borrower's redefault decision on a modified mortgage incorporating real-world frictions relevant for default decisions. Solutions to the model reveal large differences across modification structures and a basic pecking order for redefault performance controlling for resulting mortgage present value. Further, empirical tests utilizing unique and extensive data on modified loans offer broad agreement with the predictions of the model. The second essay provides one of the most complete studies for termination behavior of non-U.S. mortgages to date, jointly estimating the competing risks of prepayment and default in a grouped duration mixed proportional hazard framework applied to Singapore mortgages. The study tests option-theoretic motivations for prepayments and defaults as well as "trigger event" explanations, explores comparative results to U.S. mortgage studies, examines unique institutional characteristics of this market impacting option-theoretic motivations for loan termination, and documents that variation in sources of borrower equity matter for the exercise of default options. The final essay argues that the estimation of tail credit risk in residential mortgage portfolios remains relatively poorly understood, and that many common approaches to the problem have been incomplete or inadequate. In addition to laying out the fundamental components of sound portfolio credit risk assessment, the essay develops competing models for realistic dynamics of underlying risk factors, such as home prices. Particular attention is paid to identifying the properties of these models most consequential for the estimated distribution of losses, and to measures of implied sensitivity to geographic diversification.
Download or read book Risk Based Pricing and the Enhancement of Mortgage Credit Availability Among Underserved and Higher Credit Risk Populations written by Yongheng Deng and published by . This book was released on 2006 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates an option-based hazard model of the competing risks of FHA mortgage termination. Results indicate that the elevated default risks of loans originated among lower credit quality and minority borrowers are more than offset by the damped prepayment speeds of those loans, so as to result in markedly lower loan termination probabilities among underserved borrower groups. Those damped termination risks translate into sizable reductions in risk premia to investors in simulated lower credit-quality mortgage pools. Empirical findings suggest that such pooling and risk-based pricing of FHA-insured mortgages could serve to substantially reduce housing finance costs among underserved borrowers, so as to advance both their homeownership opportunities and related federal housing policy objectives.
Download or read book Contemporaneous Loan Stress and Termination Risk in the CMBS Pool written by Tracey Seslen and published by . This book was released on 2005 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes the impact of contemporaneous loan stress on the termination of loans in the commercial mortgage-backed securities pool using a novel measure, based on changes in net operating incomes and property values at the MSA-property type-year level. Employing a semi-parametric competing risks model for a variety of specifications, we find that the probability of default is extremely low at very high levels of stress, even though the coefficient estimates of greatest interest are very statistically significant. These results suggest substantial lender forbearance and a possible reluctance to foreclose, and are consistent with previous literature which models the incidence of default as quot;gradualquot; rather than quot;ruthlessquot; once it is quot;in the moneyquot.
Download or read book Credit Counseling and Mortgage Termination by Low Income Households written by Valentina Hartarska and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Published research on credit counseling and mortgage termination is surprisingly scarce, despite substantial growth in this industry. While the purpose of counseling is to assist low-income borrowers to improve their handling of debt and thereby reduce default, counseling may also improve the borrowers' understanding of their financial positions and thus induce optimal mortgage termination. Using a competing-risks framework, we study the effects on default and prepayment of a counseling program implemented in several Midwest states. We find weak evidence of that the default hazard was lower for graduates of the counseling program, but that their default behavior was more optimal. The prepayment hazard was higher for counseled borrowers, but their prepayment behavior was not more optimal. Overall, counseling seems to affect the lenders' profits, but the net effect should be evaluated both in terms of prepayment and default.
Download or read book Commercial Mortgage Terminations written by Yongheng Deng and published by . This book was released on 2005 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Option theory predicts that mortgage default or prepayment will be exercised if the call or put option is quot;in the money.quot; We extend our analysis to commercial mortgages using data from commercial mortgage-backed securities. The paper presents a model of the competing risks of mortgage termination (default and prepayment) using data from commercial mortgage-backed securities (CMBS) deals.Our results show that the option model explains both default and prepayment for commercial mortgages. We find that loan specific variables (such as loan-to-value ratio, debt service coverage ratio, loan-rate spread and prepayment prevention) are important explanatory variables for both default and prepayment. We also find that default and prepayment vary rather dramatically across regions of the country; given that regional economies do not move in perfect lock-step, we would expect there to be cross-sectional variation in default rates. However, the degree of variation across regions in terms of prepayments is not as predictable.
Download or read book Spatial Heterogeneity in Mortgage Terminations by Refinance Sale and Default written by Yongheng Deng and published by . This book was released on 2005 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of spatially correlated unobservable variables on the refinancing, selling, and default decisions of mortgage borrowers. Virtually the entire mortgage literature acknowledges that borrower specific characteristics, such as culture, education, or access to information, play an important role in the mortgage termination decisions. While we do not observe these variables directly, we note that borrowers of similar background tend to cluster together in neighborhoods. We propose a method to take advantage of this information and reconcile the theoretical option-based models of mortgage terminations with the empirical experience of mortgage refinancing, sale, and default.Specifically, we estimate a competing risks hazard model with random effect using a three-stage maximum likelihood estimation (3SMLE) approach with space-varying coefficient method (SVC) to modify the covariance structure according to the spatial distribution of the observations. Beyond a significant improvement of the model performance, this yields a number of insightful implications for mortgage termination behavior. For instance, borrowers of the affluent quot;West Sidequot; of Los Angeles County both refinance and move at a higher rate than predicted by the standard maximum likelihood estimation method. At the same time, borrowers from some lower-valued neighborhoods tend to stay longer than expected with their mortgages and properties. Such findings have direct implications for mortgage pricing and have the potential to ultimately improve the equity and efficiency of the lending markets.
Download or read book Loan Servicer Heterogeneity and the Termination of Subprime Mortgages written by Anthony Pennington-Cross and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "After a mortgage is originated the borrower promises to make scheduled payments to repay the loan. These payments are sent to the loan servicer, who may be the original lender or some other firm. This firm collects the promised payments and distributes the cash flow (payments) to the appropriate investor/lender. A large data set (loan-level) of securitized subprime mortgages is used to examine if individual servicers are associated with systematic differences in mortgage performance (termination). While accounting for unobserved heterogeneity in a competing risk (default and prepay) proportional hazard framework, individual servicers are associated with substantial and economically meaningful impacts on loan termination"--Federal Reserve Bank of St. Louis web site.
Download or read book Alfred Jacobsens Norske Billedb ger written by and published by . This book was released on 1908 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Unobserved Heterogeneity in Models of Competing Mortgage Termination written by John M. Clapp and published by . This book was released on 2005 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends unobserved heterogeneity to the multinomial logit model (MNL) framework in the context of mortgages terminated by refinance, move, or default. It tests for the importance of unobserved heterogeneity when borrower characteristics such as income, age and credit score are included to capture lender-observed heterogeneity. It does this by comparing the proportional hazard model (PHM) to MNL with and without mass-point estimates of unobserved heterogeneous groups of borrowers.The mass point mixed hazard model (MMH) yields larger and more significant coefficients for several important variables in the move model, whereas the MNL model without unobserved heterogeneity performs well with the refinance estimates. The MMH clearly dominates the alternative models in-sample and out-of-sample. However, it is sometimes difficult to obtain convergence for the models estimated jointly with mass points.
Download or read book The Duration of Foreclosures in the Subprime Mortgage Market written by Anthony Pennington-Cross and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines what happens to mortgages in the subprime mortgage market once foreclosure proceeding are initiated. A multinominial logit model that allows for the interdependence of the possible outcomes or risks (cure, partial cure, paid off, and real estate owned) through the correlation of associated unobserved heterogeneities is estimated. The results show that the duration of foreclosures is impacted by many factors including contemporaneous housing market conditions, the prior performance of the loan (prior delinquency), and the state-level legal environment.
Download or read book Effects of Regulation on Prepayment and Default of Subprime Mortgages written by Jevgenijs Steinbuks and published by . This book was released on 2008 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of restrictions on prepayment penalties on prepayment and default termination of subprime mortgages from both a theoretical and empirical perspective. The theoretical results suggest that, if lenders substitute points for prepayment penalties, prepayment rates will rise and defaults fall. Consistent with predictions of theoretical model empirical results indicate that predatory lending laws lowered default rates and raised prepayment rates in the subprime market. Estimates from competing risks models of mortgage termination on 30-year fixed-rate subprime mortgage data suggest that, controlling for other factors, the estimated probabilities of prepayment are higher in the states that have introduced predatory lending laws and restricted prepayment penalties. Though no definite conclusions could be drawn regarding the effect of state laws on subprime defaults, there is some evidence that early defaults have decreased as the scope of regulation expanded.
