Housing price cycles and prepayment rates of U.S. mortgage pools

Joe P. Mattey and Nancy Wallace

No 99-12, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Empirical mortgage prepayment models generally have trouble explaining differences in mortgage prepayment speeds among pools with similar interest rates on the underlying mortgages. In this paper, we model some of the sources of termination heterogeneity across mortgage pools, particularly the role of regional variations in housing prices in generating atypical prepayment speeds. Using a sample of Freddie Mac mortgage pools from 1991-1998, we find evidence that differences in house price dynamics across regions are an important source of between-pool heterogeneity. This finding is then shown to be robust to alternative ways of parameterizing pool heterogeneity in mortgage termination models.

Keywords: Real property; Mortgages (search for similar items in EconPapers)
Date: 1999
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