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Mortgage prepayments and changing underwriting standards

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  • William Hedberg
  • John Krainer

Abstract

Despite historically low mortgage interest rates, borrower prepayments have been lower than expected over the past year. For example, a model based on prepayment data from 2000 through the beginning of 2009 predicts a prepayment rate for the first quarter of 2010 roughly twice as high as the observed rate. It can be conjectured that current low prepayment rates reflect the influence of factors specific to the housing bust, including a significant tightening of lending terms for certain borrowers, weak housing demand, and high foreclosure rates.

Suggested Citation

  • William Hedberg & John Krainer, 2010. "Mortgage prepayments and changing underwriting standards," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul19.
    • Handle: RePEc:fip:fedfel:y:2010:i:jul19:n:2010-22
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    Keywords

    Mortgage loans;

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