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The Economics of Mortgage Terminations: Implications for Mortgage Lenders and Mortgage Terms

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  • Patric H. Hendershott
  • Sheng Cheng Hu
  • Kevin E. Villani

Abstract

The paper begins with the development of models explaining the mortgage refinancing and assumption decisions of households Having identified the economic variables influencing these decisions, we then simulate the models for different values to determine under what conditions households will refinance or assume. Finally, we draw some implications of these results for: (1) the impact of a decline in mortgage rates on the asset portfolio yields of mortgage lending institutions and (2) the effect of the observed rise in interest rate volatility, including the optimal terminations response of mortgage borrowers, on the terms of the mortgage contract and the returns to mortgage lenders on recently issued mortgage loans.

Suggested Citation

  • Patric H. Hendershott & Sheng Cheng Hu & Kevin E. Villani, 1982. "The Economics of Mortgage Terminations: Implications for Mortgage Lenders and Mortgage Terms," NBER Working Papers 0918, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0918
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    Cited by:

    1. John M. Harris, Jr. & G. Stacy Sirmans, 1987. "Discount Points, Effective Yields and Mortgage Prepayments," Journal of Real Estate Research, American Real Estate Society, vol. 2(2), pages 97-104.
    2. Patric H. Hendershott, 1986. "Mortgage Pricing: What Have We Learned So Far?," NBER Working Papers 1959, National Bureau of Economic Research, Inc.

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