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The Termination of Subprime Mortgages

The Termination of Subprime Mortgages

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Published by: Phil on Sep 27, 2009
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09/03/2010

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Research Division
Federal Reserve Bank of St. Louis
Working Paper Series
Loan Servicer Heterogeneity andThe Termination of Subprime Mortgages
Anthony Pennington-Cross
 
andGiang Ho
Working Paper 2006-024Ahttp://research.stlouisfed.org/wp/2006/2006-024.pdf April 2006FEDERAL RESERVE BANK OF ST. LOUISResearch DivisionP.O. Box 442St. Louis, MO 63166
 ______________________________________________________________________________________ The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulatediscussion and critical comment. References in publications to Federal Reserve Bank of St. Louis WorkingPapers (other than an acknowledgment that the writer has had access to unpublished material) should becleared with the author or authors.
 
 
Loan Servicer Heterogeneity andThe Termination of Subprime Mortgages
Anthony Pennington-Cross*Pennington-Cross@stls.frb.orgor anmpc@yahoo.com. Work: 314-444-8592Cell: 636-399-0395andGiang HoGiang.T.Ho@stls.frb.orgTel: 314-444-7315The Federal Reserve Bank of St. LouisResearch DivisionP.O. Box 442St. Louis, MO 63166-0442Key Words: Mortgage, Default, Prepayment, Servicer JEL: G21, G12, L23, L85*Corresponding author: Anthony Pennington-Cross. The views expressed in thisresearch are those of the individual author and do not necessarily reflect the official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, and theBoard of Governors.
 
 
Loan Servicer Heterogeneity andThe Termination of Subprime MortgagesAbstract
After a mortgage is originated the borrower promises to make scheduled payments to repay the loan. These payments are sent to the loan servicer, who may bethe original lender or some other firm. This firm collects the promised payments anddistributes the cash flow (payments) to the appropriate investor/lender.A large data set (loan-level) of securitized subprime mortgages is used to examineif individual servicers are associated with systematic differences in mortgage performance (termination). While accounting for unobserved heterogeneity in acompeting risk (default and prepay) proportional hazard framework, individual servicersare associated with substantial and economically meaningful impacts on loan termination.

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