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Fractional Logit Estimation of the LTV Decision

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versi Prepayment of German Bauspar-Loans: A look at the importance of portfolio considerations and borrower characteristics Marcus Cieleback* Lehrstuhl VWL I, University of Bayreuth Universitätsstr. 30 95447 Bayreuth, Germany e-mail: [email protected] January 2001 Abstract In the USA, a substantial literature has emerged to investigate the prepayment behavior of mortgage borrowers using loan level data to identify the effects of borrower characteristics. This paper contributes to the existing literature in three ways. First, the study looks for the first time at the prepayment behavior of German mortgage borrowers. Second, it uses a unique Bauspar-Loan data set consisting of over 55,000 Bauspar-Loans paid off or prepaid between January 1998 and September 2000. Third, based on the special characteristics of the Bauspar-Loan, it is possible to identify portfolio considerations as the driving force for prepayment. Keywords: Prepayment, Bauspar-Loan, portfolio considerations JEL-classification: D10, G11, G20, R20 * A research grant by the Bausparkasse Schwäbisch Hall AG is gratefully acknowledged. 2 Prepayment of German Bauspar-Loans: A look at the importance of portfolio considerations and borrower characteristics 1 Introduction The analysis of prepayment behavior has so far mainly focused on the U.S. Market. One of the reasons could be the high degree of securitization observed in the United States. Nearly half of the stock of outstanding mortgages is held in mortgage-backed securities and about 50 percent of all new mortgages is securitized. Prepayment analysis is an essential part in forecasting mortgage cash flows which form the basis for the pricing of mortgage-backed securities. Most of the empirical research in the U.S. has used publicly available mortgage pool data to get information for the

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