The Impact of Initial-Year Discounts on Arm Prepayments

REAL ESTATE ECONOMICS, Vol. 25 No. 3, Fall 1997

Posted: 1 Aug 1997

See all articles by Richard K. Green

Richard K. Green

University of Southern California - Lusk Center for Real Estate

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

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Abstract

This study uses new data on the rate of prepayment on conventional single-family adjustable-rate mortgages (ARMs) that originated between 1983 and 1986 to determine if ARMs with and without initial-year discounts have the same probability of paying off. The new data are from a large national private mortgage insurer in the United States. Each loan is tracked from its origination date through prepayment or the end of 1991. Nonparametric test statistics are used to test for differences in these prepayment rates. The findings suggest that ARMs with initial-year discounts are paid off at a rate that is essentially no different from the rate on otherwise comparable ARMs without initial-year discounts.

JEL Classification: R0

Suggested Citation

Green, Richard K. and Shilling, James D., The Impact of Initial-Year Discounts on Arm Prepayments. REAL ESTATE ECONOMICS, Vol. 25 No. 3, Fall 1997, Available at SSRN: https://ssrn.com/abstract=9308

Richard K. Green (Contact Author)

University of Southern California - Lusk Center for Real Estate ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

James D. Shilling

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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