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

Posted: 29 Aug 2010

See all articles by James B. Kau

James B. Kau

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Donald C. Keenan

University of Cergy-Pontoise; University of Georgia

Xiaowei Li

affiliation not provided to SSRN

Date Written: August 26, 2010

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.

Keywords: mortgage termination, MSA, shared-frailty effect

Suggested Citation

Kau, James B. and Keenan, Donald C. and Li, Xiaowei, An Analysis of Mortgage Termination Risks: A Shared Frailty Approach with MSA-Level Random Effects (August 26, 2010). Journal of Real Estate Finance and Economics, Vol. 42, No. 1, 2011, Available at SSRN: https://ssrn.com/abstract=1666293

James B. Kau (Contact Author)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-9110 (Phone)
706-542-4295 (Fax)

Donald C. Keenan

University of Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

University of Georgia ( email )

510 Brooks Hall
Athens, GA 30602
United States
706-542-3668 (Phone)

Xiaowei Li

affiliation not provided to SSRN ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
466
PlumX Metrics