A Dynamic Analysis of Fixed- and Adjustable-Rate Mortgage Terminations

Posted: 20 Apr 2002

See all articles by Charles A. Calhoun

Charles A. Calhoun

Calhoun Consulting

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Abstract

This paper provides a side-by-side comparison of loan-level statistical models for fixed- and adjustable-rate mortgages. Multinomial logit models for quarterly conditional probabilities of default and prepayment are estimated. We find that the estimated impacts of embedded option values for prepayment and default are generally quite similar across both FRM and ARM loans, providing additional empirical support for the basic predictions of the options theory. We also find that differences in estimates of conditional probabilities of prepayment and default associated with mortgage age, origination period, original LTV, and relative loan size, indicate the continued significance of these other economic and demographic factors for empirical models of mortgage terminations.

Keywords: default, prepayment, option values, event history models, conditional probability, time-varying logit

Suggested Citation

Calhoun, Charles A. and Deng, Yongheng, A Dynamic Analysis of Fixed- and Adjustable-Rate Mortgage Terminations. Journal of Real Estate Finance & Economics, Vol. 24, No. 1 & 2. Available at SSRN: https://ssrn.com/abstract=301088

Charles A. Calhoun (Contact Author)

Calhoun Consulting ( email )

4837 King Solomon Drive
Annandale, VA 22003
United States
703-978-3495 (Phone)
703-978-1933 (Fax)

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

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