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Housing price cycles and prepayment rates of U.S. mortgage pools

Author

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  • Joe P. Mattey
  • Nancy Wallace

Abstract

Empirical mortgage prepayment models generally have trouble explaining differences in mortgage prepayment speeds among pools with similar interest rates on the underlying mortgages. In this paper, we model some of the sources of termination heterogeneity across mortgage pools, particularly the role of regional variations in housing prices in generating atypical prepayment speeds. Using a sample of Freddie Mac mortgage pools from 1991-1998, we find evidence that differences in house price dynamics across regions are an important source of between-pool heterogeneity. This finding is then shown to be robust to alternative ways of parameterizing pool heterogeneity in mortgage termination models.

Suggested Citation

  • Joe P. Mattey & Nancy Wallace, 1999. "Housing price cycles and prepayment rates of U.S. mortgage pools," Working Paper Series 99-12, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:99-12
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    File URL: http://www.frbsf.org/econrsrch/workingp/wp99-12.pdf
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    Keywords

    Real property; Mortgages;

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