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Autonomous and Financial Mortgage Prepayment

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Abstract

Using individual data from Freddie Mac's portfolio of conventional mortgages, this paper estimates prepayment probabilities as a function of characteristics pertaining to the borrower, the loan, regional, and economic variables. Distinction is made between induced and autonomous prepayments. Based on the curvature of the underlying termination pattern, nonparametric methods are derived to estimate the prepayment probabilities and to predict a mortgage life under various scenarios. The findings point to a response asymmetry with respect to the level and trend of interest rates. Non-interest effects reveal the significance of the borrower's characteristics, property age, and regional mobility rates on mortgage termination.

Suggested Citation

  • Sam R. Hakim, 1997. "Autonomous and Financial Mortgage Prepayment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 1-16.
    • Handle: RePEc:jre:issued:v:13:n:1:1997:p:1-16
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    References listed on IDEAS

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    1. Frank J. Navratil, 1985. "The Estimation Of Mortgage Prepayment Rates," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 8(2), pages 107-117, June.
    2. Giliberto, S Michael & Thibodeau, Thomas G, 1989. "Modeling Conventional Residential Mortgage Refinancings," The Journal of Real Estate Finance and Economics, Springer, vol. 2(4), pages 285-299, December.
    3. Quigley, John M, 1987. "Interest Rate Variations, Mortgage Prepayments and Household Mobility," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 636-643, November.
    4. Cunningham, Donald F & Capone, Charles A, Jr, 1990. "The Relative Termination Experience of Adjustable to Fixed-Rate Mortgages," Journal of Finance, American Finance Association, vol. 45(5), pages 1687-1703, December.
    5. Schwartz, Eduardo S & Torous, Walter N, 1989. " Prepayment and the Valuation of Mortgage-Backed Securities," Journal of Finance, American Finance Association, vol. 44(2), pages 375-392, June.
    6. Andrew H. Chen & David C. Ling, 1989. "Optimal Mortgage Refinancing with Stochastic Interest Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 278-299, September.
    7. Green, Jerry & Shoven, John B, 1986. "The Effects of Interest Rates on Mortgage Prepayments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 41-59, February.
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    Cited by:

    1. Murphy, Austin, 2000. "A comparative analysis of the price-process model of mortgage valuation," Review of Financial Economics, Elsevier, vol. 9(2), pages 65-82, December.
    2. Austin Murphy, 2000. "A comparative analysis of the price‐process model of mortgage valuation," Review of Financial Economics, John Wiley & Sons, vol. 9(2), pages 65-82, December.
    3. Stephen F. Thode, 2000. "CMOs, Duration Risk and a New Mortgage," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 73-103.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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