Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?

Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults? Why, when, and who terminates their mortgages? The primary reasons for mortgage termination are refinancing, selling of the property, and default. This article is the first to explicitly model these competing risks within a unified conceptual framework and provide a link between theoretical value-maximizing mortgage-termination models and empirical estimation. I find, for instance, that the refinancing risk is highly sensitive to interest-rate changes and other variables capturing the value of the mortgage. On the other hand, the necessity to relocate, either through sale of the property of default, is sensitive to the local economic conditions but largely independent of the value of the mortgage. Furthermore, I explicitly model the spatial distribution of the mortgage-termination risks. This approach captures striking spatial patterns of mortgage termination. It also mitigates, at least partially, one of the biggest obstacles to mortgage termination estimation: omitted variables. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1011158400165
Publisher site
See Article on Publisher Site

Abstract

Why, when, and who terminates their mortgages? The primary reasons for mortgage termination are refinancing, selling of the property, and default. This article is the first to explicitly model these competing risks within a unified conceptual framework and provide a link between theoretical value-maximizing mortgage-termination models and empirical estimation. I find, for instance, that the refinancing risk is highly sensitive to interest-rate changes and other variables capturing the value of the mortgage. On the other hand, the necessity to relocate, either through sale of the property of default, is sensitive to the local economic conditions but largely independent of the value of the mortgage. Furthermore, I explicitly model the spatial distribution of the mortgage-termination risks. This approach captures striking spatial patterns of mortgage termination. It also mitigates, at least partially, one of the biggest obstacles to mortgage termination estimation: omitted variables.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 3, 2004

References

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