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The probability of fixed- and adjustable-rate mortgage termination

โœ Scribed by Richard A. Phillips; Eric Rosenblatt; James H. Vanderhoff

Publisher
Springer US
Year
1996
Tongue
English
Weight
598 KB
Volume
13
Category
Article
ISSN
0895-5638

No coin nor oath required. For personal study only.

โœฆ Synopsis

This article analyzes mortgage terminations using a national individual loan data set for the 1986-1992 period. The standard option-choice-theoretic framework is supplemented with variables to proxy for non-option-related termination determinants. Separate multinominal logit models are estimated for three mortgage types: 30-year FRMs, 15-year FRMs, and 30-year ARMs. The results indicate substantial differences in the response of the mortgage types to variables included in the model. FRM15 prepayments are the most responsive to prepayment option values; FRM30 prepayments are less responsive to option values and are dirven by local area housing market and economic conditions; ARM prepayment rates are higher but default rates are lower relative to the FRMs. A noteworthy finding is that teaser discounts reduce the likelihood of ARM defaults.

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