Effects of Prepayment Regulations on Termination of Subprime Mortgages

doi:10.1016/j.jbankfin.2015.07.012

Publication:
Effects of Prepayment Regulations on Termination of Subprime Mortgages

dc.contributor.author	Steinbuks, Jevgenijs
dc.date.accessioned	2015-10-09T14:52:57Z
dc.date.available	2015-10-09T14:52:57Z
dc.date.issued	2015-07-30
dc.description.abstract	Because of their higher interest rates, subprime mortgages are subject to substantial prepayment risk as borrowers who succeed in improving their creditworthiness systematically prepay leaving those with higher credit risk in the mortgage pool. Lenders anticipated this problem and attached substantial prepayment penalties to subprime mortgages. Some state governments responded with regulations that banned prepayment penalties. This created a natural experiment in which the effects of prepayment penalties on the supply and performance of endorsed mortgages can be evaluated. Ho and Pennington Cross (2008) have demonstrated that these regulations reduced the supply of mortgage credit. In this paper, the effect of prepayment penalty restrictions on the performance of endorsed subprime mortgages is tested. Theory predicts that the restrictions should raise prepayment and lower default. The empirical results strongly confirm the first prediction while the effects on default have the correct sign but lack significance.	en
dc.identifier.citation	Journal of Banking and Finance
dc.identifier.doi	10.1596/22759
dc.identifier.issn	0378-4266
dc.identifier.uri	https://hdl.handle.net/10986/22759
dc.language.iso	en_US
dc.publisher	Elsevier
dc.rights	CC BY-NC-ND 3.0 IGO
dc.rights.holder	World Bank
dc.rights.uri	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
dc.subject	subprime
dc.subject	mortgages
dc.subject	banking regulation
dc.subject	loan prepayment
dc.subject	loan defaults
dc.title	Effects of Prepayment Regulations on Termination of Subprime Mortgages	en
dc.type	Journal Article	en
dc.type	Article de journal	fr
dc.type	Artículo de revista	es
dspace.entity.type	Publication
okr.date.disclosure	2018-07-30
okr.date.doiregistration	2025-05-06T10:55:00.177124Z
okr.doctype	Publications & Research
okr.doctype	Publications & Research::Journal Article
okr.externalcontent	External Content
okr.globalpractice	Finance and Markets
okr.identifier.doi	10.1016/j.jbankfin.2015.07.012
okr.journal.nbpages	245-56
okr.language.supported	en
okr.peerreview	Academic Peer Review
okr.region.country	United States
okr.relation.associatedurl	http://www.sciencedirect.com/science/article/pii/S0378426615002101
okr.topic	Finance and Financial Sector Development::Bankruptcy and Resolution of Financial Distress
okr.topic	Finance and Financial Sector Development::Banks & Banking Reform
okr.topic	Finance and Financial Sector Development::Financial Regulation & Supervision
okr.topic	Finance and Financial Sector Development::Housing Finance
okr.unit	Development Research Group (DECRG)
okr.volume	59(October 2015)