Efficiency in the Mortgage Market: The Borrower's Perspective

John Quigley and Robert Van Order

Real Estate Economics, 1990, vol. 18, issue 3, 237-252

Abstract: This paper uses mortgage history data from the Federal Home Loan Mortgage Corporation to analyze the prepayment behavior of homeowners and to test whether borrowers exercise their prepayment options in a manner consistent with contingent claims models. A variety of hazard models are estimated from individual data on more than 6000 mortgages issued during the 1976–1980 period. In these models, it is clear that the extent to which the prepayment option is “in the money” has a strong effect on behavior. However, it is less clear that the option is exercised quite as ruthlessly as the theory predicts.

Date: 1990
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