Prepayment Risk of Personal Housing Mortgage Loans Research: The Case of Xi'an, a Commercial Bank

Residential mortgage loans as well as the MBS (mortgage-backed security), which securitizes these loans, are exposed to prepayment risk. We examine the effect of prepayment process on the duration of the CMO (multi-tranche MBS). In particular, we examine the effect of partial pass-through where there is a call limit expressed as a percentage of initial tranche balance. Due to the absence of empirical research on the CMO duration, neither the actual CMO duration nor the determinants of the CMO duration have been reported. Our study reports the actual CMO duration and the determinants of the CMO duration. By showing that the CMO duration is much shorter than the nominal time-to-maturity we point to the need to search for longer duration MBS structures. We find that in both the deterministic and stochastic interest rate environments duration is reduced as prepayment speed rises and duration rises as call limit decreases. We make contribution to the literature by shedding light on the effect of prepayment and call limit on the duration of multi-tranche MBS. In particular, this research characterizes the impact of the partial pass-through structuring approach on the CMO duration as well as CMO pricing. Finally, it assists CMO investors in better assessing and managing reinvestment risks of pass-through products.

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OPTIMIZATION OF THE SUB-PORTFOLIO STRUCTURE OF THE MORTGAGE LOANS OF A COMMERCIAL BANK BASED AT A MINIMAX RISK ASSESMENT

Вестник Алтайской академии экономики и права ◽

10.17513/vaael.1644 ◽

2021 ◽

Vol 1 (№4 2021) ◽

pp. 35-41

Author(s):

I.Yu. Vygodchikova ◽

M.A. Gorskiy

Keyword(s):

Commercial Bank ◽

Minimax Risk ◽

Mortgage Loans ◽

Risk Assesment ◽

Portfolio Structure

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International Real Estate Review

International Real Estate Review ◽

10.53383/100109 ◽

2009 ◽

Vol 12 (2) ◽

pp. 135-156

Author(s):

Raymond J. Struyk ◽

◽

Nilesh Patel ◽

Keyword(s):

Commercial Bank ◽

Metropolitan Areas ◽

Mortgage Lending ◽

Mortgage Loan ◽

Industrialized Countries ◽

Mortgage Loans ◽

Final Sample ◽

Established Relationship ◽

The Common ◽

Home Purchase

The incidence of taking a mortgage loan from a commercial bank or cooperative for home purchase is sharply lower in developing than industrialized countries. Indeed, the common approach for achieving good quality housing is for a family to construct and improve a dwelling over a number of years. At the same time, it may be possible for formal lenders to expand the volume of mortgage lending by marketing mortgage loans better tailored to those more prone to seek them. This analysis is based on a representative survey of households intending to purchase a dwelling in the next three years with a final sample size of 1,281 conducted in 2008 in Indonesia’s seven largest metropolitan areas. We find that those more likely to seek such loans are families who already have an established relationship with a bank or cooperative, professionals and those with higher permanent incomes, and those with greater knowledge of mortgage loans. These factors all contain important ideas to assist lenders in targeting mortgage lending marketing campaigns.

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