Housing Mortgage Prepayment Risk Research

Mortgage-backed securitization (MBS), one of the most important international financial innovations in the past 20 years, has already become main financing tool in house financial markets of U.S. and other developed countries. MBS can directly turn the real estate investments that lack liquidity but can produce steady income into securities investments that can circulate extensively in the financial market. Not only can MBS can vitalize financial assets, raise the utilization ratio of capital and banks' resistibility against risks, but also can offer new varieties of investment, expand the source of mortgage, vitalize developers' overstocked goods.Prepayment risk origins from debtors' prepayment behavior can make cash flow unstable, bring great difficulty and complexity to the appraisal of MBS. Therefore it is the focus of studying MBS to probe into the prepayment behavior, predict the prepayment rate and construct the prediction model of prepayment behavior. Based on this research background, this paper has carried out the following works:Firstly, this paper has introduced the concept and characteristic of prepayment risk, expounded it's influence on cash flow, valuation of MBS, investors and initiators. In addition, prepayment risk could bring great expense to the issuers, commercial banks, so next this paper has analyzed the impact of prepayment risk on our commercial banks in China.Secondly, this paper has analyzed the debtors' prepayment behavior in the basic mortgage pool. We have divided the factors influence the debtors' prepayment behavior into two categories, refinancing and housing turnover, in which including interest rate, seasonality debts and so on. Moreover, considering the situation of our country, we have analyzed the factors influence the debtors' prepayment behavior of our country.Thirdly, this paper has introduced some common standards and models for prepayment, applied hazard function about survival theory in biostatistics to analyze the prepayment behavior in MBS, put forward and analyzed the proportional hazard model (PHM).Finally, this paper has put forward several suggestions on how to deal with prepayment risk, including two major measures: transfer and penalty.