Three essays on mortgage default and prepayment
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Investigating the residential mortgage defaults and prepayments has been the subject of research for the past three decades. The literature on the probability of the mortgage default and prepayment is often used to inform credit risk policy and asset pricing strategy. This literature has evolved from the use of logistic regressions to the use of survival and frailty models that control for unobserved heterogeneity. I apply a shared-frailty survival model to analyze the mortgage termination risks. In particular, I investigate whether mortgage originated in the same Metropolitan Statistical Area (MSA) share common unobserved factors and how these factors affect the mortgage termination risks. A similar approach is applied to examine the group-level frailty effect for mortgages with the same origination year.