A Dynamic Look at Subprime Loan Performance

Subprime Refinancing: Equity Extraction and Mortgage Termination

“…Higher unemployment rates are associated with higher prepayments, but have no statistically significant impact on defaults. While these results differs from previous results found in the prime market, if unemployment leads to delinquency (a few missed payments, not foreclosure), it is consistent with Danis and Pennington-Cross (2005) who showed that delinquency in the subprime market marginally increases prepayments more than defaults.…”

“…For example, subprime loans are less responsive to changes in interest rates than prime loans, while prepaying more often when it is out of the money (rising interest rates). In addition, loans that have been delinquent over long periods of time tend to prepay instead of default and show relatively high default correlation rates in the most expensive segments of the market (Alexander et al 2002, Cowan and Cowan 2004, Pennington-Cross 2003, and Danis and Pennington-Cross 2005.…”

The impact of predatory loan terms on subprime foreclosures: The special case of prepayment penalties and balloon payments

“…16 TRF relies on several data sources: U.S. census data and census estimates for 1990, 2000, and 2002; the U.S. census 2000 5 Percent Public Use Microdata Sample for Pennsylvania; foreclosure files from the Protonotary's office in Monroe Country; property-specific sale and mortgage data (fee-based) produced by RealQuest, First American Real Estate Solutions, Inc., and Landex by Optical Storage Solutions, Inc.; data from the Homeowners Emergency Mortgage Assistance Program; one-on-one telephone interviews with approximately 75 homeowners in or on the verge of foreclosure; and copies of two lawsuits filed by the Office of Attorney General against two developers in Monroe County. 17 In their follow-up study using a sample of subprime mortgages from the LP database on securitized private-label pool collateral, Danis and Pennington-Cross (2005) find that delinquent subprime loans are more likely to prepay than to default and that the rate of increase in prepayment is substantially larger as the intensity of delinquency increases. They find that delinquency predominantly leads to termination of a loan through prepayment, while negative equity leads to termination through default.…”

The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing

“…Capozza and Thomson (2006) find that subprime loans that are 90 days or more delinquent take four times longer to become Real Estate Owned (REO), but are much less likely to cure. In addition, Danis and Pennington-Cross (2005) find that subprime loans that linger in delinquency are much more likely to be prepaid than enter foreclosure proceedings. They interpret this type of prepayment as "distressed" prepayment because of the large payment that would be necessary to bring the status of the loan back to current (cured).…”