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Unobserved Heterogeneity in Models of Competing Mortgage Termination Risks
Author(s) -
Clapp John M.,
Deng Yongheng,
An Xudong
Publication year - 2006
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2006.00166.x
Subject(s) - econometrics , economics , multinomial logistic regression , context (archaeology) , sample (material) , hazard , point (geometry) , estimation , credit score , logit , statistics , actuarial science , mathematics , paleontology , chemistry , geometry , management , organic chemistry , chromatography , biology
This article extends unobserved heterogeneity to the multinomial logit (MNL) model framework in the context of mortgages terminated by refinance, move or default. It tests for the importance of unobserved heterogeneity when borrower characteristics such as income, age and credit score are included to capture lender‐observed heterogeneity. It does this by comparing the proportional hazard model to MNL with and without mass‐point estimates of unobserved heterogeneous groups of borrowers. The mass‐point mixed hazard (MMH) model yields larger and more significant coefficients for several important variables in the move model, whereas the MNL model without unobserved heterogeneity performs well with the refinance estimates. The MMH clearly dominates the alternative models in sample and out of sample. However, it is sometimes difficult to obtain convergence for the models estimated jointly with mass points.