IDEAS home Printed from https://ideas.repec.org/p/luk/wpaper/8662.html
   My bibliography  Save this paper

Mortgage Prepayment by Defeasance

Author

Listed:
  • George Lefcoe

Abstract

To protect against losses when borrowers prepay to take advantage of declining interest rates,banks and insurance companies have come to rely on "yield maintenance" clauses. Theseprovisions require the borrower to make a lump sum payment to cover the lender’s potential lossfrom reinvesting prepaid sums. For reasons described later, yield maintenance provisions haveproved woefully insufficient to compensate the holders of securitized commercial mortgage loanswhen borrowers prepay. Increasingly, mortgage loans originated for sale through commercialmortgage backed securities (CMBS) only allow prepayment through defeasance. Underdefeasance provisions, prepaying borrowers must provide Treasury obligations exactlymatching the cash flow of all scheduled mortgage payments. This article compares the practicalconsequences of yield maintenance to defeasance provisions for commercial borrowers andmortgage bond investors.

Suggested Citation

  • George Lefcoe, 1999. "Mortgage Prepayment by Defeasance," Working Paper 8662, USC Lusk Center for Real Estate.
    • Handle: RePEc:luk:wpaper:8662
    as

    Download full text from publisher

    File URL: http://lusk.usc.edu/sites/default/files/working_papers/wp_1999_107.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stokes, Jeffrey R. & Brinch, Brian M., 2001. "Valuing Agricultural Mortgage-Backed Securities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 33(3), pages 1-19, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:luk:wpaper:8662. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Steins (email available below). General contact details of provider: https://edirc.repec.org/data/lcuscus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.