Universal Asymptotic Behavior of Mortgage Prepayments

Universal Asymptotic Behavior of Mortgage Prepayments

Mortgage prepayments play a crucial role in the pricing and hedging of mortgage backed securities. An important feature of mortgage prepayment modeling is burnout; as time goes on those borrowers who have the greatest tendency to refinance are removed from the pool leaving only those that are less likely to refinance. In this paper we examine the implications of burnout on the late time prepaym...

Measuring the Effects of Prepayments on Mortgage-Backed Securities

Mortgage-backed securities differ from corporate and government bonds in that their cash flows cannot be estimated with certainty, since homeowners often prepay their mortgages. Prepayments may include sale of the property, refinancing, curtailments, or liquidation of the property due to foreclosure. Standard fixed-income measurements, which allow investors to compare different types of bonds, ...

The Effects of Interest Rates on Mortgage Prepayments

Three main types of mortgages are fixed interest contracts which automatically fall due on the sale of a dwelling, fixed rate loans which are assumable by a buyer, and floating rate instruments. When interest rates rise, the fall in the economic value of these assets in savings and loan associations' portfolios varies from one form of mortgage to another. For either of the fixed interest rate c...

The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings;

Many households face the tradeoff between paying an extra dollar off the remaining mortgage on their house and saving that extra dollar in tax-deferred accounts (TDAs) used for retirement. We show that, under certain conditions, it becomes a tax arbitrage to reduce mortgage prepayments and to increase TDA contributions because of the tax deductibility of mortgage interest and tax-exemption of q...

Asymptotic Behavior of Multivariate Reward Processes with Nonlinear Reward Functions