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The Performance of Low‐Income and Minority Mortgages
Author(s) -
Firestone Simon,
Van Order Robert,
Zorn Peter
Publication year - 2007
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.1540-6229.2007.00198.x
Subject(s) - prepayment of loan , equity (law) , economics , yield (engineering) , monetary economics , value (mathematics) , sample (material) , interest rate , home equity , labour economics , finance , mathematics , statistics , materials science , chemistry , chromatography , political science , law , metallurgy
This article analyzes the performance of low‐income and minority mortgages (LIMMs) from a large sample of fixed‐rate conventional conforming mortgages. We find that low‐income borrowers are less likely to prepay when it is optimal, whereas black and Hispanic borrowers prepay more slowly than other borrowers, regardless of the option's value. After controlling for equity, credit history and some other variables, LIMMs default slightly more frequently and have about the same loss severity as other loans. Our results suggest that, for most yield curve situations, differences in LIMM prepayment behavior have little effect on pricing.