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

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  • Pavlov, Andrey D

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

Suggested Citation

  • Pavlov, Andrey D, 2001. "Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?," The Journal of Real Estate Finance and Economics, Springer, vol. 23(2), pages 185-211, September.
  • Handle: RePEc:kap:jrefec:v:23:y:2001:i:2:p:185-211
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    Cited by:

    1. Frank Fabozzi & Robert Shiller & Radu Tunaru, 2009. "Property Derivatives for Managing European Real-Estate Risk," Yale School of Management Working Papers amz2652, Yale School of Management, revised 01 Sep 2009.
    2. Erik Heitfield & Tarun Sabarwal, 2004. "What Drives Default and Prepayment on Subprime Auto Loans?," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 457-477, December.
    3. Ryan M. Goodstein, 2014. "Refinancing Trends among Lower Income and Minority Homeowners during the Housing Boom and Bust," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 690-723, September.
    4. Xudong An & John Clapp & Yongheng Deng, 2010. "Omitted Mobility Characteristics and Property Market Dynamics: Application to Mortgage Termination," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 245-271, October.
    5. Yongheng Deng & Andrey D. Pavlov & Lihong Yang, 2005. "Spatial Heterogeneity in Mortgage Terminations by Refinance, Sale and Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(4), pages 739-764, December.
    6. John M. Clapp & Yongheng Deng & Xudong An, 2006. "Unobserved Heterogeneity in Models of Competing Mortgage Termination Risks," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 243-273, June.
    7. Lozinskaia Agata & Ozhegov Evgeniy, 2016. "Key Determinants of Demand, Credit Underwriting, and Performance on Government-Insured Mortgage Loans in Russia," EERC Working Paper Series 16/03e, EERC Research Network, Russia and CIS.
    8. 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, vol. 15(1), pages 63-79, March.
    9. Yan Chang & Abdullah Yavas, 2009. "Do Borrowers Make Rational Choices on Points and Refinancing?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(4), pages 635-658.
    10. Hawkins, Raymond J., 2011. "Lending sociodynamics and economic instability," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4355-4369.
    11. 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.
    12. Kishimoto, Naoki & Kim, Yong-Jin, 2014. "Prepayment behaviors of Japanese residential mortgages," Japan and the World Economy, Elsevier, vol. 30(C), pages 1-9.

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