The Performance of Low-Income and Minority Mortgages |
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Authors: | Simon Firestone Robert Van Order Peter Zorn |
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Affiliation: | Housing Analysis and Research, Freddie Mac, McLean, VA 22102 or .;University of Aberdeen and University of Michigan, Ann Arbor, MI 48109 or .;Housing Analysis and Research, Freddie Mac, McLean, VA 22102 or . |
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Abstract: | This article analyzes the performance of low-income and minority mortgages (LIMMs) from a large sample of fixed-rate conventional conforming mortgages. We find that low-income borrowers are less likely to prepay when it is optimal, whereas black and Hispanic borrowers prepay more slowly than other borrowers, regardless of the option's value. After controlling for equity, credit history and some other variables, LIMMs default slightly more frequently and have about the same loss severity as other loans. Our results suggest that, for most yield curve situations, differences in LIMM prepayment behavior have little effect on pricing. |
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