Third Party Originators and Mortgage Prepayment Risk: An Agency Problem?
California State University at Fullerton
Gregory H. Chun
Journal of Real Estate Research, Vol. 17, No. 1/2
We focus on an agency problem encountered by mortgage lenders and investors in mortgage-backed securities when the underlying collateral is originated by third parties. Third parties, such as mortgage brokers, have economic incentives to encourage borrowers to refinance and, accordingly, their actions may affect asset values. We sketch the principal-agent problem and examine two sets of data. Results support the argument: loans originated by third parties are significantly more likely to prepay after controlling for other known determinants of termination risk. Moreover, third party loans are about three times as sensitive to refinancing incentives, compared to retail loans.
JEL Classification: G21, R39
Date posted: April 16, 1999
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.282 seconds