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An Analysis of Mortgage Termination Risks: A Shared Frailty Approach with MSA-Level Random Effects

An Analysis of Mortgage Termination Risks: A Shared Frailty Approach with MSA-Level Random Effects Investigating the residential mortgage defaults and prepayments has been the subject of research for the past three decades. The literature on mortgage default and prepayment is often used to inform credit risk policies and asset pricing strategies. This literature has evolved from the use of logistic regressions to the use of survival and frailty models that control for unobserved heterogeneity. In this paper, we apply a shared-frailty survival model to analyze the mortgage termination risks. In particular, we investigate whether mortgages originated in the same Metropolitan Statistical Area (MSA) share common unobserved factors and how these factors affect the mortgage termination risks. The paper demonstrates that MSA-level frailty, together with other risk factors, has significant effects on the probability of mortgage terminations risks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

An Analysis of Mortgage Termination Risks: A Shared Frailty Approach with MSA-Level Random Effects

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References (31)

Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
DOI
10.1007/s11146-009-9179-x
Publisher site
See Article on Publisher Site

Abstract

Investigating the residential mortgage defaults and prepayments has been the subject of research for the past three decades. The literature on mortgage default and prepayment is often used to inform credit risk policies and asset pricing strategies. This literature has evolved from the use of logistic regressions to the use of survival and frailty models that control for unobserved heterogeneity. In this paper, we apply a shared-frailty survival model to analyze the mortgage termination risks. In particular, we investigate whether mortgages originated in the same Metropolitan Statistical Area (MSA) share common unobserved factors and how these factors affect the mortgage termination risks. The paper demonstrates that MSA-level frailty, together with other risk factors, has significant effects on the probability of mortgage terminations risks.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: May 5, 2009

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