IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v08y2005i01ns021909150500035x.html
   My bibliography  Save this article

Valuing Individual Mortgage Servicing Contracts: A Comparison between Adjustable Rate Mortgages and Fixed Rate Mortgages

Author

Listed:
  • Che-Chun Lin

    (Department of Quantitative Finance, National Tsing Hua University, 101, Sec. 2, Kuang Fu Road, Hsin Chu, 30013, Taiwan, R.O.C.)

  • Lan-Chih Ho

    (Department of Foreign Exchange, Central Bank of China, 2, Roosevelt Road, Sec. 1, Taipei, 100, Taiwan, R.O.C.)

Abstract

This study constructs a valuation model from which an option-adjusted spread approach is employed to value individual mortgage servicing contracts for both adjustable rate and fixed rate mortgages. The valuation model is comprised of an exogenous OTS prepayment model, a stochastic interest rate process, and other servicing fees and costs, all of which jointly determine the servicing contract's future net cash flows and the rate at which to discount these cash flows. The sensitivity of the price of mortgage servicing rights to the changes in the economic environment is also analyzed. This work is potentially useful for servicers not only servicing mortgages but also servicing other types of loans in order to examine servicing policy-related issues.

Suggested Citation

  • Che-Chun Lin & Lan-Chih Ho, 2005. "Valuing Individual Mortgage Servicing Contracts: A Comparison between Adjustable Rate Mortgages and Fixed Rate Mortgages," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 131-146.
  • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:01:n:s021909150500035x
    DOI: 10.1142/S021909150500035X
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S021909150500035X
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1142/S021909150500035X?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chiang, Shu Ling & Yang, Tyler T. & Tsai, Ming Shann, 2016. "Assessing mortgage servicing rights using a reduced-form model: Considering the effects of interest rate risks, prepayment and default risks, and random state variables," Journal of Housing Economics, Elsevier, vol. 32(C), pages 29-46.
    2. Che-Chun Lin & Ting-Heng Chu & Larry Prather, 2006. "Valuation of Mortgage Servicing Rights with Foreclosure Delay and Forbearance Allowed," Review of Quantitative Finance and Accounting, Springer, vol. 26(1), pages 41-54, February.
    3. Jedidi, Helmi & Dionne, Georges, 2019. "Nonparametric testing for information asymmetry in the mortgage servicing market," Working Papers 19-1, HEC Montreal, Canada Research Chair in Risk Management, revised 28 Oct 2019.

    More about this item

    Keywords

    Mortgage servicing rights; prepayment; mortgage;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:01:n:s021909150500035x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.