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Prepayment and delinquency in the mortgage crisis period


  • John Krainer
  • Elizabeth Laderman


We study the interaction of borrower mortgage prepayment and mortgage delinquency during the period between 2001 and 2010. We show that when house prices flattened and began their subsequent decline, borrowers had increasingly slow prepayments and that this decline in prepayment rates roughly coincided with the sharp increase in their delinquency rates. Low credit score borrowers, in particular, display a pronounced negative correlation between default rates and prepayment rates. Shortfalls of actual prepayment rates from predicted rates based on an estimated prepayment model suggest that, in addition to the effects of declining house prices, tighter lending standards also may have played a role in weak prepayment activity.

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  • John Krainer & Elizabeth Laderman, 2011. "Prepayment and delinquency in the mortgage crisis period," Working Paper Series 2011-25, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2011-25

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    References listed on IDEAS

    1. Yuliya Demyanyk, 2009. "Quick exits of subprime mortgages," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 79-94.
    2. Kristopher S. Gerardi & Adam Hale Shapiro & Paul S. Willen, 2007. "Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures," Working Papers 07-15, Federal Reserve Bank of Boston.
    3. Glenn B. Canner & Karen E. Dynan & Wayne Passmore, 2002. "Mortgage refinancing in 2001 and early 2002," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 469-481.
    4. Kristopher Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul Willen, 2008. "Making Sense of the Subprime Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 69-159.
    5. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    6. John Krainer & Elizabeth Laderman, 2009. "Mortgage loan securitization and relative loan performance," Working Paper Series 2009-22, Federal Reserve Bank of San Francisco.
    7. Margaret M. McConnell & Richard Peach & Alex Al-Haschimi, 2003. "After the refinancing boom: will consumers scale back their spending?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Dec).
    8. John Krainer & Milton H. Marquis, 2003. "Mortgage refinancing," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
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    Mortgage loans ; Mortgages;

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