ISSN:1080-8620    

DOI:10.1111/1540-6229.00615

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

This paper tests the contingent claims model of mortgage default in its ruthless or frictionless form. The principal tests of the model are based on an unconventional source of data, namely, loan loss severities on defaulted mortgages. The frictionless model has well‐defined predictions about loss severities which we test in detail. The data analyzed include a random sample of all mortgages originated during the period 1975–90 and purchased by Freddie Mac, as well as the loss severities on all mortgages purchased by Freddie Mac which defaulted during the period. The frictionless model does not do well in these te

ISSN:1080-8620    

DOI:10.1111/1540-6229.00616

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

Residential mortgage borrowers frequently appear to behave suboptimally with respect to their mortgage prepayment options. Many borrowers fail to exercise even well‐into‐the‐money options while others prepay when the call option is out‐of‐the‐money. To account for these apparently suboptimal prepayments, the recent trend in mortgage‐backed securities research has been away from optimal call valuation models, in which the decision to exercise is determined endoge‐nously, in favor of models in which prepayment behavior is exogenously specified based on empirical estimation. This paper develops a rational model of mortgage prepayment which incorporates both types of “non‐optimal” prepayment and retains endogenous call. This enables the model to disentangle and compare the separate effects of the interest rate call, impeded by transaction costs, and of non‐interest‐rate driven prepayment. In addition, by recognizing heterogenous borrower transaction costs, the model presents a way to account more precisely for the varying prepayment lags associated with well‐into‐the‐money call options and to account for the phenomenon of “burnout” within a mortgage pool. The paper includes an empirical test of the unbiasedness of the integrated pricing model by comparing simulated prices from our theoretical model to observed prices on tr

ISSN:1080-8620    

DOI:10.1111/1540-6229.00617

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

We examine foreclosures on FHA single‐family mortgages insured during the 1975–87 period. The importance of the market value of borrower equity and national house price dispersion support much earlier work emphasizing the key role of negative equity in triggering default. The lower is “mean” market‐value equity, and the greater is dispersion, the greater is the fraction of borrowers likely to have negative equity. The unemployment rate and the book value of borrower equity are also shown to be significant determinants of default. Unemployment is one of those events that can force borrowers to move. The moving decision increases the likelihood of default because moving costs no longer deter default, and the costs of selling the house reduce the effective equity in the house. The book value of equity is relevant to this decision because it is what the sellers receive if they move without defaulting. Not only are both of these variables significant determinants of default, but the smaller is book equity, the greater is employment impact (with large book equity, unemployment should not matter because selling the house is preferred to

ISSN:1080-8620    

DOI:10.1111/1540-6229.00618

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

This paper uses an extensive and geographically dispersed sample of single‐family fixed rate mortgages to assess the prepayment and default behavior of individual homeowners. We make use of Poisson regression to efficiently estimate the parameters of a proportional hazards model for prepayment and default decisions. Poisson regression for grouped survival data has several advantages over partial likelihood methods. First, when dealing with time‐dependent covar‐iates, it is considerably more efficient in terms of computations. Second, it is possible to estimate full‐hazard models which include, for example, functions of time as well as multiple time scales (i.e., age of the loan and calendar time), in a much more straightforward manner than partial likelihood methods for un‐grouped data. Third, Poisson regression can be used to estimate non‐proportional hazards models such as additive excess risk specifications. Taken together, our data and estimation methodology allow us to obtain a better understanding of the economic factors underlying prepayment and defaul

ISSN:1080-8620    

DOI:10.1111/1540-6229.00619

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

This paper examines the theory of commercial mortgage default and tests it using a data set of 2,899 loan histories provided by a major multi‐line insurance company. A default model is estimated which relates subsequent default incidence and timing to contemporaneous loan term, borrower, property and economic/market conditions. Maximum likelihood estimation is used to estimate a hazard function predicting conditional probability of default over time. Results confirm many expected default relationships, in particular the dominance of loan terms and property value trends over time in affecting default. The effectiveness of the model in discriminating between “good” and “bad” loans is explored. Implications for underwriting practice and credit risk diversification are noted. Finally, suggestions are made for extending these results in pricing app

ISSN:1080-8620    

DOI:10.1111/1540-6229.00620

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

Information asymmetry exists between the lender and the borrower regarding the holding period of the mortgaged real estate; the lender does not know how long the borrower plans to own the house. This information asymmetry allows the cost of obtaining a mortgage to deviate from its value to the borrower. As a result, the exercise price of the option to refinance becomes the cost to the borrower of obtaining a new mortgage instead of the outstanding balance of the existing mortgage as used in previous models. The option to refinance is a sequential option; after the borrower refinances, a new option is obtained to refinance again in the future. A mortgage refinancing model is developed taking information asymmetry and sequential refinancing into account. The model is used to solve for (1) the value to the borrower of a callable mortgage and (2) the minimum interest rate differential between the contract rate of the existing mortgage and the market interest rate needed to justify refinancing.

ISSN:1080-8620    

DOI:10.1111/1540-6229.00621

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY

摘要:

In this paper, we develop a model to predict the impact of deregulation in the form of relaxing interest rate control on the integration between the mortgage credit market and the general credit market. The model is tested through the examination of the long‐term Granger‐like equilibrium relationship between mortgage interest rates and general interest rates in the pre‐1980 regulated vs. the post‐1980 deregulated periods. It is shown that the level of regulation, in the form of targeting general interest rate levels, contributes to the segmentation of the mortgage market from the capital market. To test this model, we compare the relationship between mortgage interest rates and general interest rates around 1980 where major control on interest rate levels in capital markets was lifted. Using Engle and Granger's procedure to overcome the estimation problem from nonstationarity in the interest rate series, we are able to find that the two interest rates were cointegrated after 1980 but not before. More importantly, it appears that the two markets were already integrated before the full development of the secondary mortgage markets between 1984 and 1987. Therefore, we conclude that the bulk of the integration between the mortgage and capital markets was completed as a result of the removal of interest rate controls around 1980, in contrast with previous studies that find integration occurred during the mid‐1980s primarily as a result of the rapid development of the secondary mortgag

ISSN:1080-8620    

DOI:10.1111/1540-6229.00622

出版商:Blackwell Publishing Ltd    

年代:1993

数据来源: WILEY