Mortgage repayment ahead of schedule problems

Mortgage loans in the asset securitization process, the borrowers to repay ahead of time will seriously affect the conduct of securities pricing, which has always been concerned about the early repayment of foreign scholars accumulated a wealth of research results, which were reviewed in this article. Key words: mortgage; early repayment of loans; Summary of Key words: F830.572 China: A Article ID :1003-9031 (2007) 02-0069-04 foreign mortgage market has existed for a long Period of time. After years of development, currently in the capital markets account for a large share. In the United States, since the 20th century occurred during the 30 mortgage loans in 1968 to have a first mortgage securities sold (Mortgage Pass-through Securities) mark of the mortgage-backed securities, mortgage securities market has been rapid development. In 2000, the mortgage has been more than 5,000,000,000,000 U.S. dollars of assets, more than consumer loans, commercial loans and business loans combined. [1] in the mortgage securities and derivatives research, in advance of repayment by the acts of academic and practical concerns. Repayment in advance (prepayment) refers to the borrowers in the loan before the due date to repay some or all of the loans. The borrower (mortgagor that is) to repay ahead of schedule, although the lender will not lose the principal, but the early repayment behavior affected the lender's cash flow. Early repayment resulted in a single act of mortgage repayment of principal and interest cash flow uncertainty, which also increased the mortgage-backed securities on the basis of the assets - mortgage portfolio of cash flow uncertainty. The previous uncertainties affecting the lender's loan rate of return, then an uncertainty is affecting the bond issuers and investors of revenues and costs. This shows that the early repayment of the impact from running through the issuance of mortgage loans into mortgage-backed securities with a final maturity pay off the entire process. As a result, this problem has been developed in the field of academics and financial managers of concern and research in this subject has accumulated a great deal of results, this paper is to advance through the mortgage repayment problems of research results, in order to further improve our housing Mortgage forward play. And the impact of a mortgage early repayment of mortgage securities can be considered as factors underlying asset portfolio with a combination of options. The combination of options in general can be seen as a combination of two options: The borrower has the right to early repayment of the right to buy (the price for the repayment of outstanding balances), and the borrower's breach of contract to sell the right to (price to the market value of mortgage assets ). In theory, when interest rates higher than market interest rate refinancing, the early repayment options for real, the borrower will choose the implementation options; when interest rates lower than market interest rate refinancing, early repayment options for the virtual value of the loan People will not choose to repay ahead of schedule. Early analysis of early repayment options to the main theory. However, the actual results are not entirely the case, when market interest rates higher than the refinancing rate, or even ahead of the repayment options at a depth of real value, the borrower does not choose to repay ahead of schedule; On the other hand, when interest rates lower than the refinancing rate, The borrower will repay ahead of schedule. Option theory can not explain very well in advance of the actual repayment and default, Green and LaCour-Little (1999) pointed out that the borrower's repayment ahead of schedule often appears to be reasonable. [2] to explain the reasons for the early repayment of the principal assumption that there are internal and external assumptions two broad categories. The former will act as early repayment of the endogenous variable interest rate, the interest rate assumption that the effects of fluctuations in the value of the options in order to influence people's decision to repay ahead of schedule; the latter assumption of repayment in advance by act other than interest rate factors These factors include: seasonal factors, the characteristics of mortgage loans, economic activity status, demographic factors, and so on. 1. The interest rate factor is the impact of interest rates ahead of time to repay an important factor. When the current lower interest rates gradually, people will want to carry out the new financing, get a lower interest rate loans. The current mortgage interest rates and the difference between the contract rate (the interest rate difference) is to stimulate the refinancing of power. The greater the gap between the two, on the mortgage re-financing of the stronger power. Not only the size of interest rate changes affect the repayment ahead of schedule, interest rate changes also affect the path of the early repayment. In general mortgage interest rates begin to decline to a certain extent, most sensitive borrowers will take action, resulting in high rates of repayment in advance. In this context, even if mortgage rates drop again, and even lower interest rates, remaining ahead of the borrower's repayment rate is not significantly decreased and stabilized. This is because the initial drop in interest rates, most have the ability to refinance and sensitive to changes in mortgage interest rates were gradually leaving the pool of loans, or those remaining on the mortgage refinancing stimulus is not sensitive or because of poor credit records, and other causes Eligible for a new mortgage, which showed in the refinancing was stimulated by a slower repayment ahead of schedule. This phenomenon is called "burnout phenomenon" (burnout). 2. Seasonal factors, seasonal factors, means the repayment ahead of schedule to show a seasonal trend. The reason the housing market and the level of activity related to the transaction. In the United States, home to buy in the spring, in the late summer and gradually reached a peak in the fall and winter to gradually decline. Due to borrowers tend to sell through their existing homes to buy new housing, and housing mortgage loans and require the borrower to sell the home after not have to pay off the balance of payments, the repayment ahead of schedule of activities is often an increase in the spring , To the highest in the summer, followed by a slow decline in the autumn, winter to reach the bottom, in order to repay ahead of schedule showing a typical seasonal characteristics. In addition, the United States like the majority of families in the school year between the summer migration, the United States in the school calendar is also an impact on early repayment of the important factors. 3. The characteristics of mortgage loans (1) the type of loan. Generally speaking, fixed-rate mortgages (Fixed Rate Mortgage referred to as the FRM) is greater than the risk of early repayment of adjustable-rate mortgages (Adjustable Rate Mortgage referred to as ARM) ahead of the repayment risks. When mortgage interest rates decline, due to adjustable-rate mortgages are adjusted from time to time the contract rate, the interest rate adjustment on the contract equal to the market interest rate plus a margin or financial institutions based on the cost of funds rate plus a margin, as long as the borrower By this margin is less than the savings obtained in advance for the repayment and refinancing for the cost, it would not have taken place through refinancing and for the repayment ahead of schedule, in advance thereby reducing the risk of repayment. (2) mortgage properties. Mortgage properties will have an impact on the early repayment. For example, in the United States, the Federal Housing Administration (Federal Housing Administration referred to as FHA) and Veterans Administration guarantees (Veterans Administration referred to as the VA) security guarantees and conventional (non-governmental security) is a difference between an indisputable fact. For all of the repayment ahead of schedule, government-guaranteed loans with conventional loans secured, the former for the early repayment of more sensitive. FHA / VA loan repayment ahead of schedule with low sensitivity is a major cause of these borrowers is that the vast majority of new home buyers. Secondly, FHA / VA and conventional loans to borrowers than lower mortgage income, the amount of cash to pay less, which makes mortgage re-financing more difficult. Since the application fees and valuation fees are fixed, and FHA / VA borrowers, the average mortgage balance smaller, so a further advantage of the lack of financing, and a small number of well-to-FHA borrowers do not need to refinance. (3) age of debt. U.S. mortgage prepayment behavior research shows that the debt at the age of two and a half less than the loan repayment rate in advance of its relatively low market little affected by fluctuations in interest rates and other social factors. This is because as the age of the debt to extend the work of the  changes such as divorce, and increase the likelihood of the incident, which houses the possibility of selling it to increase. 4. The overall level of economic activity in the overall level of economic activity for the relocation decision-making have a strong impact, the impact may be positive it may be negative. In general, health and prosperity of the national economic situation led to the growth of personal income, labor migration opportunities to increase consumer confidence improved, so that the increase in family mobility, resulting in the improvement of housing turnover rate; for the national economic slump, On the other hand will appear in another. Similarly, the region's overall level of economic activity and regional migration patterns will also affect the volume of housing transactions. Regional economic poverty may be through the outward migration of the population in the form of housing led to the increase in trading volume. 5. Demographics of the population age structure of the factors in the demand for housing has had a significant impact. Practice has proved that there is no critical mass of the first to buy a house, trying to second-hand house trading will be a lack of buyers, thus they are forced to lock themselves in the first housing above, and the first person to buy a house just for the general composition of the composition or are about to The new family of the young people. This is most evident in the United States, 50, of the 20th century during the baby boom during the 60 people who were born in the 1980s became the first person to buy a house, which stimulate the housing has become an essential element of the transaction. In addition, with age, migration patterns will change, as people like to retire after the noise from the city to move to a quiet suburban or rural, which will have an impact on housing demand, thus affecting the rate of repayment ahead of schedule. The full text of this article for the original PDF is not installed the browser to download and install the original text of the summary: Mortgage Asset Securitization implementation of the process, the borrowers to repay ahead of time will seriously affect the conduct of securities pricing, which has always been concerned about foreign scholars also ahead of schedule The section has accumulated a wealth of research results, which were reviewed in this article. Key words: mortgage; early repayment of loans; Summary of Key words: F830.572 China: A Article ID :1003-9031 (2007) 02-0069-04 foreign mortgage market has existed for a long Period of time. After years of development, currently in the capital markets account for a large share. In the United States, since the 20th century occurred during the 30 mortgage loans in 1968 to have a first mortgage securities sold (Mortgage Pass-through Securities) mark of the mortgage-backed securities, mortgage securities market has been rapid development. In 2000, the mortgage has been more than 5,000,000,000,000 U.S. dollars of assets, more than consumer loans, commercial loans and business loans combined. [1] in the mortgage securities and derivatives research, in advance of repayment by the acts of academic and practical concerns. Repayment in advance (prepayment) refers to the borrowers in the loan before the due date to repay some or all of the loans. The borrower (mortgagor that is) to repay ahead of schedule, although the lender will not lose the principal, but the early repayment behavior affected the lender's cash flow. Early repayment resulted in a single act of mortgage repayment of principal and interest cash flow uncertainty, which also increased the mortgage-backed securities on the basis of the assets - mortgage portfolio of cash flow uncertainty. The previous uncertainties affecting the lender's loan rate of return, then an uncertainty is affecting the bond issuers and investors of revenues and costs. This shows that the early repayment of the impact from running through the issuance of mortgage loans into mortgage-backed securities with a final maturity pay off the entire process. As a result, this problem has been developed in the field of academics and financial managers of concern and research in this subject has accumulated a great deal of results, this paper is to advance through the mortgage repayment problems of research results, in order to further improve our housing Mortgage forward play. And the impact of a mortgage early repayment of mortgage securities can be considered as factors underlying asset portfolio with a combination of options. The combination of options in general can be seen as a combination of two options: The borrower has the right to early repayment of the right to buy (the price for the repayment of outstanding balances), and the borrower's breach of contract to sell the right to (price to the market value of mortgage assets ). In theory, when interest rates higher than market interest rate refinancing, the early repayment options for real, the borrower will choose the implementation options; when interest rates lower than market interest rate refinancing, early repayment options for the virtual value of the loan People will not choose to repay ahead of schedule. Early analysis of early repayment options to the main theory. However, the actual results are not entirely the case, when market interest rates higher than the refinancing rate, or even ahead of the repayment options at a depth of real value, the borrower does not choose to repay ahead of schedule; On the other hand, when interest rates lower than the refinancing rate, The borrower will repay ahead of schedule. Option theory can not explain very well in advance of the actual repayment and default, Green and LaCour-Little (1999) pointed out that the borrower's repayment ahead of schedule often appears to be reasonable. [2] to explain the reasons for the early repayment of the principal assumption that there are internal and external assumptions two broad categories. The former will act as early repayment of the endogenous variable interest rate, the interest rate assumption that the effects of fluctuations in the value of the options in order to influence people's decision to repay ahead of schedule; the latter assumption of repayment in advance by act other than interest rate factors These factors include: seasonal factors, the characteristics of mortgage loans, economic activity status, demographic factors, and so on. 1. The interest rate factor is the impact of interest rates ahead of time to repay an important factor. When the current lower interest rates gradually, people will want to carry out the new financing, get a lower interest rate loans. The current mortgage interest rates and the difference between the contract rate (the interest rate difference) is to stimulate the refinancing of power. The greater the gap between the two, on the mortgage re-financing of the stronger power. Not only the size of interest rate changes affect the repayment ahead of schedule, interest rate changes also affect the path of the early repayment. In general mortgage interest rates begin to decline to a certain extent, most sensitive borrowers will take action, resulting in high rates of repayment in advance. In this context, even if mortgage rates drop again, and even lower interest rates, remaining ahead of the borrower's repayment rate is not significantly decreased and stabilized. This is because the initial drop in interest rates, most have the ability to refinance and sensitive to changes in mortgage interest rates were gradually leaving the pool of loans, or those remaining on the mortgage refinancing stimulus is not sensitive or because of poor credit records, and other causes Eligible for a new mortgage, which showed in the refinancing was stimulated by a slower repayment ahead of schedule. This phenomenon is called "burnout phenomenon" (burnout). 2. Seasonal factors, seasonal factors, means the repayment ahead of schedule to show a seasonal trend. The reason the housing market and the level of activity related to the transaction. In the United States, home to buy in the spring, in the late summer and gradually reached a peak in the fall and winter to gradually decline. As the borrowers tend to be sold through their existing homes to buy new housing, and housing mortgage loans and require the borrower to sell the home after not have to pay off the balance of payments, the repayment ahead of schedule of activities is often an increase in the spring , To the highest in the summer, followed by a slow decline in the autumn, winter to reach the bottom, in order to repay ahead of schedule showing a typical seasonal characteristics. In addition, the United States like the majority of families in the school year between the summer migration, the United States in the school calendar is also an impact on early repayment of the important factors. 3. The characteristics of mortgage loans (1) the type of loan. Generally speaking, fixed-rate mortgages (Fixed Rate Mortgage referred to as the FRM) is greater than the risk of early repayment of adjustable-rate mortgages (Adjustable Rate Mortgage referred to as ARM) ahead of the repayment risks. When mortgage interest rates decline, due to adjustable-rate mortgages are adjusted from time to time the contract rate, the interest rate adjustment on the contract equal to the market interest rate plus a margin or financial institutions based on the cost of funds rate plus a margin, as long as the borrower By this margin is less than the savings obtained in advance for the repayment and refinancing for the cost, it would not have taken place through refinancing and for the repayment ahead of schedule, in advance thereby reducing the risk of repayment. (2) mortgage properties. Mortgage properties will have an impact on the early repayment. For example, in the United States, the Federal Housing Administration (Federal Housing Administration referred to as FHA) and Veterans Administration guarantees (Veterans Administration referred to as the VA) security guarantees and conventional (non-governmental security) is a difference between an indisputable fact. For all of the repayment ahead of schedule, government-guaranteed loans with conventional loans secured, the former for the early repayment of more sensitive. FHA / VA loan repayment ahead of schedule with low sensitivity is a major cause of these borrowers is that the vast majority of new home buyers. Secondly, FHA / VA and conventional loans to borrowers than lower mortgage income, the amount of cash to pay less, which makes mortgage re-financing more difficult. Since the application fees and valuation fees are fixed, and FHA / VA borrowers, the average mortgage balance smaller, so a further advantage of the lack of financing, and a small number of well-to-FHA borrowers do not need to refinance. (3) age of debt. U.S. mortgage prepayment behavior research shows that the debt at the age of two and a half less than the loan repayment rate in advance of its relatively low market little affected by fluctuations in interest rates and other social factors. This is because as the age of the debt to extend the work of the  changes such as divorce, and increase the likelihood of the incident, which houses the possibility of selling it to increase. 4. The overall level of economic activity in the overall level of economic activity for the relocation decision-making have a strong impact, the impact may be positive it may be negative. In general, health and prosperity of the national economic situation led to the growth of personal income, labor migration opportunities to increase consumer confidence improved, so that the increase in family mobility, resulting in the improvement of housing turnover rate; for the national economic slump, On the other hand will appear in another. Similarly, the region's overall level of economic activity and regional migration patterns will also affect the volume of housing transactions. Regional economic poverty may be through the outward migration of the population in the form of housing led to the increase in trading volume. 5. Demographics of the population age structure of the factors in the demand for housing has had a significant impact. Practice has proved that there is no critical mass of the first to buy a house, trying to second-hand house trading will be a lack of buyers, thus they are forced to lock themselves in the first housing above, and the first person to buy a house just for the general composition of the composition or are about to The new family of the young people. This is most evident in the United States, 50, of the 20th century during the baby boom during the 60 people who were born in the 1980s became the first person to buy a house, which stimulate the housing has become an essential element of the transaction. In addition, with age, migration patterns will change, as people like to retire after the noise from the city to move to a quiet suburban or rural, which will have an impact on housing demand, thus affecting the rate of repayment ahead of schedule. The full text of this article for the original PDF is not installed the browser to download the full text of the original installation, on the second mortgage repayment ahead of forecast models should be pointed out that early repayment of the forecast was not to predict a specific individual act of repayment in advance ( In fact it is impossible in mortgage rates over the next unknown case forecast behavior of repayment in advance), its fundamental purpose is that given all the available on mortgages and mortgage people and the current economic situation, that is expected of The entire loan portfolio ahead of the rate of repayment. Ahead of the forecast rate of repayment of the principal methods of repayment are ahead of schedule, the theory and practice of empirical analysis. 1. Repayment ahead of schedule in practice has been on the market use a number of practices as a benchmark for repayment ahead of schedule in the United States Federal Housing Authority has the experience and conditions of the early repayment rate (Conditional Prepayment Rate referred to as CPR) and the Public Securities Association (Public Securities Association referred to as PSA) in advance of the benchmark rate of repayment. [3] of the earliest of the early repayment rate assumption is extremely briefly, then assumed mortgages in the first 12 years, there is no repayment in advance. This is obviously unreasonable assumption, was "ahead of Federal Housing Authority to repay the experience of" alternative. Office of Federal Housing Authority is based on the experience of the Federal Housing Administration (FHA) from 1970 to guarantee the mortgage repayment in advance of empirical data, on a regular basis by (usually about a year) the survival of mortgage-form table of data Given 30-year mortgages until the due date in the course of any given year of the possibility of survival, these data will contain the rate of repayment ahead of schedule. Office of Federal Housing Authority to repay ahead of schedule experience was measurement is the rate of repayment in advance of the most commonly used, but it can not be said that a particular combination of the rate of repayment ahead of schedule, mainly because of the Office of Federal Housing Authority in advance of the repayment rate is derived from A variety of mortgage interest rate period. Early repayment rate and interest rate cycles associated with, it is estimated that the rate of early repayment, different interest rate cycle in advance of an average repayment rate of market participants are not very useful. In addition, the Office of Federal Housing Authority, the experience did not provide a consistent standard, as the new form is published on a regular basis about a year, and each table is often different statistics-based operations, which should make people wonder what Forms the basis for repayment ahead of schedule. Forecast for repayment ahead of schedule another benchmark is conditional prepayment rate (CPR). It assumes that a combination of the remaining part of the principal amount of mortgage remaining in the period ahead of the monthly repayment. It is called conditional prepayment rate because it is based on the remaining balance of the mortgage terms for the calculation. Public Securities Association (PSA) in advance to repay the principal benchmark for mortgage-backed securities is estimated (Collateralized Mortgage Obligations referred to as CMOs) and the introduction of a standardized model of early repayment. In fact it is not a real model, accurate, it measures just ahead of the repayment of a market conduct practices. The benchmark 30-year mortgages assumed the following CPR: for the first month of 0.2 percent, after 30 months of monthly growth of 0.2 percent, when it reached 6% per year, while the remainder of the year, always at 6%. The benchmark known as the 100% PSA or referred to as 100PSA. The size of the advance repayment rate of PSA can be expressed as a percentage. For example, 50PSA refers to the PSA benchmark rate of repayment in advance of the half; 150PSA refers to the PSA benchmark rate of repayment in advance of 1.5 times. In fact, the above-mentioned practices of the early repayment of the assumptions are too simple, but its biggest drawback is that early repayment rate is nothing to do with interest rates and therefore, the academic and practical attention to the early repayment of the relevant Theoretical and empirical analysis of the study. 2. Repayment in advance of the theoretical research Archer and Ling [4] will be about repayment in advance of the study were divided into two groups: those from the options theory, the decision-making ahead of the repayment options as the value of the endogenous variables in the study Fluctuations in interest rates and housing prices in advance where the value of the repayment options and the implementation of the best; proceeding analysis of the evidence from other people's behavior in advance loan repayment. With the theoretical option of early repayment conduct a study of literature at least back to Dunn and McConnell. The market is no friction, that does not exist under the assumption that the transaction costs, they use the interest rate contingent claims theory of the Government National Mortgage Association (Government National Mortgage Association referred to as the GNMA) guaranteed mortgage-backed securities pricing, and the establishment of borrowing Were the best model for repayment ahead of schedule. [5] Brennan and Schwartz to relax on the assumption that early repayment of that mortgage refinancing in interest rates higher or lower than the mortgage interest rates are likely to repay ahead of schedule. [6] to follow this assumption, Schwartz and Torous repayment ahead of schedule in the act of the introduction of Poisson process, the establishment of the early repayment of the proportion of the opportunity to model (Proportional Hazard Model), and further violations will be taken into account factors that will be applied to the results of Mortgage-backed securities pricing model. [7] Stanton in a random study under the assumption that interest rates ahead of repayment options, as well as the value of mortgage securities prices. [8] in advance by act of repayment in advance repayment option value, but also the value of the options being the main two random variables: r interest rates and the value of mortgage housing H. Usually assume that changes in market interest rates following CIR model: in-θ refers to the risk-free rate of the value of long-term trend, k refers to the speed of adjustment factor, σr for the volatility of interest rates, dzr a standard Wiener process. Changes in the value of housing to meet the standard log-normal distribution: style of α that the revenue generated returns home, σH residential income fluctuations in the rate of return, s as a means to maintain the home to pay the cost, dzH a standard Wiener Process. In these two factors, from more than two-, Kau et al [9] get the value of the mortgage M partial differential equations of the following: in-ρ means dzr two state variables and the correlation between dzH, ρdt = dzrdzH. The combination of a certain type of boundary conditions can be the best of H * and r *. Rational theory that the early repayment options when market interest rates lower than r *, people choose to repay ahead of schedule. 3. An Empirical Study of repayment ahead of schedule due to the use of options theory can not explain very well in advance of the actual repayment, more and more people concerned about the empirical study. From the statistical analysis methodology, the mortgage repayment in advance of the behavior characteristics of variable duration, the rate of repayment in advance of distribution for the performance of the loans after the initial stage of a gradual increase in the fourth to the seventh year between the peak and then decline . As a result, this kind of problem with empirical research for the duration of the data model - the survival time model, including the opportunity to model (Hazard Model) and discrete-time model and so on. Data analysis is continuing econometrics in the relatively new and rapidly growing area of continued analysis of the variables of interest is an event from start to finish (or termination) went through before measuring the length of time. In the early repayment of the empirical study, the proportion of the opportunity to model (Proportional Hazard Model) is one of the most popular model, the model set: λ (t) = λ0 (t) exp (-βx) which λ0 (t) Is the opportunity to baseline (Baseline Hazard), by the individual characteristics of the decision, x as a function of opportunity to influence the Association of variables (the impact of the early repayment of exogenous factors), β Society for the variable parameters. Cox [10] The likelihood Division (Partial Likelihood Estimate) provides a baseline estimate without the opportunity to λ0 β value can be estimated on the way, do not know the function of survival, the Association for the analysis of the different variables (the impact in advance Repayment of exogenous factors) for the opportunity to influence the function appears to be more convenient and thus be more widely used. The proportion of the opportunity to benefit from the model, scholars estimate the quantitative changes in the rate of repayment in advance, age, and debt refinancing as well as the lag effect of seasonal factors, the impact of early repayment rate has been studied. In recent years, scholars will use options theory to model the ratio of opportunities, will repay ahead of schedule as a breach of contract and options combined, the study of early termination of the act of mortgage (mortgage termination). Early empirical research data combinations Securities Data (Pool Data) for analysis. However, the combination of the data can not distinguish between a good result in early repayment of the endogenous variable (interest rate changes in the refinancing) and exogenous variables (such as seasonal factors, age of debt, etc.), a result of the recent empirical study of the beginning of the more To use more data loans (Loan Level Data). The use of credit data, the expansion of the early repayment of the research, makes it possible to analyze the borrower's credit history and personality characteristics of the borrower and the lending LTV ratio (Loan-to-values) for repayment ahead of schedule. The full text of this article for the original PDF is not installed the browser to download the full text of the original installation, and three mortgage Conclusions of the early repayment behavior affected the lender's cash flow, but also mortgage-backed securities holders of cash flow, there has been widespread concern . Overseas, the mortgage market is very developed, in advance of the behavior of repayment from the simple theory to practice and then to study theoretical research and empirical analysis, to obtain a great deal. In particular for mortgage loans and have detailed comprehensive statistics for the early repayment of empirical research to create a good condition. In China, the rise of home mortgages in the near future, in comparison with foreign countries, the mortgage related to the small study, the lack of an effective forecasting and early repayment of conduct to guard against the risks associated with early repayment methods, in some areas of commercial banks Even in the loan contract only through the advance payment to prohibit circumvent this risk. Due to various countries in the policy and consumer habits and preferences, and financial markets to improve in areas such as a big difference