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Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?

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  • Pavlov, Andrey D
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    Abstract

    Why, when, and who terminates their mortgages? The primary reasons for mortgage termination are refinancing, selling of the property, and default. This article 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 of default, is sensitive to the local economic conditions but largely independent of the value of the mortgage. Furthermore, I explicitly model the spatial distribution of the mortgage-termination risks. This approach captures striking spatial patterns of mortgage termination. It also mitigates, at least partially, one of the biggest obstacles to mortgage termination estimation: omitted variables. Copyright 2001 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

    Volume (Year): 23 (2001)
    Issue (Month): 2 (September)
    Pages: 185-211

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    Handle: RePEc:kap:jrefec:v:23:y:2001:i:2:p:185-211

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    Cited by:
    1. John Clapp & Yongheng Deng & Xudong An, 2005. "Unobserved heterogeneity in Models of Competing Mortgage Termination Risks," Working Paper 8585, USC Lusk Center for Real Estate.
    2. Yongheng Deng & Andrey D. Pavlov & Lihong Yang, 2004. "Spatial Heterogeneity in Mortgage Terminations by Refinance, Sale and Default," Working Paper 8602, USC Lusk Center for Real Estate.
    3. Xudong An & John Clapp & Yongheng Deng, 2005. "Omitted Mobility Characteristics and Property Market Dynamics: Application to Mortgage Termination," Working Paper 8584, USC Lusk Center for Real Estate.
    4. Frank Fabozzi & Robert Shiller & Radu Tunaru, 2009. "Property Derivatives for Managing European Real-Estate Risk," Yale School of Management Working Papers, Yale School of Management amz2652, Yale School of Management, revised 01 Sep 2009.
    5. Erik Heitfield & Tarun Sabarwal, 2004. "What Drives Default and Prepayment on Subprime Auto Loans?," Finance, EconWPA 0405034, EconWPA.
    6. Hartarska, Valentina & Gonzalez-Vega, Claudio, 2006. "Evidence on the effect of credit counseling on mortgage loan default by low-income households," Journal of Housing Economics, Elsevier, Elsevier, vol. 15(1), pages 63-79, March.
    7. Agatha M. Poroshina, 2014. "Credit Risk Modeling Of Residential Mortgage Lending In Russia," HSE Working papers WP BRP 30/FE/2014, National Research University Higher School of Economics.

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