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Mortgage Curtailment and Default

Author

Listed:
  • Che-Chun Lin

    (National Tsinghua University, 101, Sec. 2, Kuang-Fu Road, Hsin-Chu 30013, Taiwan)

  • Ting-Heng Chu

    (Department of Economics, Finance, and Urban Studies, East Tennessee State University, Box 70686, Johnson City, TN 37614)

  • Larry J. Prather

    (Department of Economics, Finance, and Urban Studies, East Tennessee State University, Box 70686, Johnson City, TN 37614)

  • Perry Wang

    (Fubon Financial Holding Company, 3F 237 Section 1 Chien Kuo S. Road, Taipei 106, Taiwan)

Abstract

We explore the effect of mortgage curtailment payments on subsequent default probabilities. Although curtailment is not popular in western countries, it is the dominant form of prepayment in Asia. Using more than 6 years of mortgage performance records from an Asian bank, we investigate the impact of curtailment payments on mortgage default risk. The results of logistic regressions reveal that the cumulative curtailment is the most significant factor in predicting the future default probabilities of a seasoned mortgage pool. Thus, mortgage modeling for Asian countries should be different from mortgage modeling for western countries.

Suggested Citation

  • Che-Chun Lin & Ting-Heng Chu & Larry J. Prather & Perry Wang, 2005. "Mortgage Curtailment and Default," International Real Estate Review, Global Social Science Institute, vol. 8(1), pages 95-109.
    • Handle: RePEc:ire:issued:v:08:n:01:2005:p:95-109
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    References listed on IDEAS

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    Cited by:

    1. Weida Kuang & Chunlin Liu & Qun Wu & Hongchao Zeng, 2021. "How do Interest Rate Changes Affect Mortgage Curtailments? Evidence from China," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 395-427, September.
    2. McCollum, Meagan N. & Lee, Hong & Pace, R. Kelley, 2015. "Deleveraging and mortgage curtailment," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 60-75.
    3. R. Kelley Pace & Shuang Zhu, 2016. "Inferring Price Information from Mortgage Payment Behavior: a Latent Index Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 53(2), pages 246-267, August.
    4. Deng, Yongheng & Gu, Quanlin & He, Jia, 2021. "Reinforcement learning and mortgage partial prepayment behavior," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    curtailment payment; default; cumulative curtailment; mortgage modeling;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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