PT  - JOURNAL ARTICLE
AU  - Lakhbir S. Hayre
AU  - Sharad Chaudhary
AU  - Robert A. Young
TI  - Anatomy of Prepayments
AID  - 10.3905/jfi.2000.319236
DP  - 2000 Jun 30
TA  - The Journal of Fixed Income
PG  - 19--49
VI  - 10
IP  - 1
4099  - https://pm-research.com/content/10/1/19.short
4100  - https://pm-research.com/content/10/1/19.full
AB  - Prepayment models have come to be widely used in the mortgage market. Effective models are based on fundamental relationships that are likely to persist over time, but allow time-varying values of key inputs in order to capture environmental changes over time. The authors explain the major causes of prepayments, and describe how the modeling framework deals with them through turnover, refinancing, default, and curtailment sub-models. They applied the model to five applications covering a range of borrower demographics and mortgage terms, including home equity loans, hybrid ARMs, and prepayment penalty mortgages. A “user's guide” cautions readers about the conditional nature of projections and prepayment model error.