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The Probability of Fixed- and Adjustable-Rate Mortgage Termination

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  • Phillips, Richard A
  • Rosenblatt, Eric
  • VanderHoff, James H

Abstract

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 driven 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. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Phillips, Richard A & Rosenblatt, Eric & VanderHoff, James H, 1996. "The Probability of Fixed- and Adjustable-Rate Mortgage Termination," The Journal of Real Estate Finance and Economics, Springer, vol. 13(2), pages 95-104, September.
    • Handle: RePEc:kap:jrefec:v:13:y:1996:i:2:p:95-104
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    Cited by:

    1. Hyeongjun Kim & Hoon Cho & Doojin Ryu, 2018. "Characteristics of Mortgage Terminations: an Analysis of a Loan-Level Dataset," The Journal of Real Estate Finance and Economics, Springer, vol. 57(4), pages 647-676, November.
    2. Nai Jia Lee, 2003. "Expected Return of Housing and Mortgage Termination," International Real Estate Review, Global Social Science Institute, vol. 6(1), pages 75-101.
    3. Xudong An & Yongheng Deng & Eric Rosenblatt & Vincent Yao, 2012. "Model Stability and the Subprime Mortgage Crisis," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 545-568, October.
    4. Chen L. Miller, 2018. "Comparison of Two Affordable Housing Finance Channels," International Real Estate Review, Global Social Science Institute, vol. 21(2), pages 227-250.
    5. Lanot, Gauthier & Leece, David, 2010. "The Performance of UK Securitized Subprime Mortgage Debt: ‘Idiosyncratic’ Behaviour or Mortgage Design?," MPRA Paper 27137, University Library of Munich, Germany.
    6. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 169-195.

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