Summary
Prepayment of mortgage loans
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Extract
Differentiating prepayment risk.
Prepayments risks differ for loans from different geographic markets and by the type of originator. Prepayment speeds also vary by the type of loan. This overview analyzes some of those differentiating characteristics.
Prepayment risk is generally regarded as the single most significant risk associated with mortgage assets. This is due in part to the impact of prepayments on the timing of mortgage cash flows but also due to the effect of interest rates on the level of prepayments. As the availability of data and the quality of analytical tools have improved, additional findings have come to light in identifying mortgages that are most likely to prepay under different circumstances. As a result, not only has the sensitivity of the traditional factors (rate, location and loan type) been more clearly understood, but more comple...See the full content of this document
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