What Drives Default and Prepayment on Subprime Auto Loans?
Erik Heitfield () and
Tarun Sabarwal ()
The Journal of Real Estate Finance and Economics, 2004, vol. 29, issue 4, pages 457-477
This paper uses novel data on the performance of loan pools underlying asset-backed securities to estimate a competing risks model of default and prepayment on subprime automobile loans. We find that prepayment rates increase rapidly with loan age but are not affected by prevailing market interest rates. Default rates are much more sensitive to aggregate shocks than are prepayment rates. Increases in unemployment precede increases in default rates, suggesting that defaults on subprime automobile loans are driven largely by shocks to household liquidity. There are significant differences in the default and prepayment rates faced by different subprime lenders. Those lenders that charge the highest interest rates experience the highest default rates, but also experience somewhat lower prepayment rates. We conjecture that there is substantial heterogeneity among subprime borrowers, and that different lenders target different segments of the subprime market. Because of their higher default rates, loans that carry the highest interest rates do not appear to yield the highest expected returns.
References: Add references at CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Working Paper: What Drives Default and Prepayment on Subprime Auto Loans? (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:kap:jrefec:v:29:y:2004:i:4:p:457-477
Access Statistics for this article
The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans
More articles in The Journal of Real Estate Finance and Economics from Springer
Series data maintained by Guenther Eichhorn ().