About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

2 Housing Fin. Rev. 127 (1983)
The Economics of Mortgage Terminations: Implications for Mortgage Lenders and Mortgage Terms

handle is hein.journals/hsnfnrv2 and id is 129 raw text is: 





The Economics of

Mortgage Terminations:

Implications for

Mortgage Lenders and

Mortgage Terms





                by Patric H. Hendershott, Sheng Hu,
                                     and Kevin E. Villani*




     This paper begins with the development of models explaining the
     mortgage refinancing and assumption decisions of households.
     Having identified the economic variables influencing these decisions,
     we then simulate the models for different values to determine under
     what conditions households will refinance or assume in order to
     deduce the effect of a decline in mortgage rates on the asset portfolio
     yields of mortgage lending institutions. Finally, we draw some implica-
     tions of these results for the effect of the observed rise in interest-
     rate volatility-including the optimal terminations response of
     mortgage borrowers-on the terms of the mortgage contract and the
     returns to mortgage lenders on recently issued mortgage loans.



I. Introduction

    For the past 50 years, mortgage debt has been repaid in a relatively
predictable manner. Amortization occurred according to a prespecified
schedule, and prepayments took the form of either a lump sum upon
the sale of the house collateralizing the mortgage or occasional double

  * The Ohio State University, Purdue University, and the Federal Home Loan Mortgage
Corporation, respectively. The views expressed in this paper are those of the authors, and
are not intended to reflect the views or policy of the Federal Home Loan Bank Board.
  Editor's Note: This paper was written in the spring of 1982 and could be viewed, in part,
as a forecast of the likely effect upon mortgage life of declines in interest rates that have
occurred since then.
© 1983 by Patric H. Hendershott, Sheng Hu, and Kevin E. Villani.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing nearly 3,000 academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline with pricing starting as low as $29.95

Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most