Mortgage-backed securities: models of prepayment, an analysis

Abstract

The objective of this paper is to provide a review current literature on single family fixed rate mortgage prepayment estimation models and to determine a method to improve the estimation of mortgage prepayments for the purpose of projecting the cash flow from mortgage securities. Several prepayment methodologies and models were analyzed to find a method to enhance the forecasting of mortgage prepayments. It was determined that the mortgage prepayment model developed in this paper provides a better estimation of prepayments when homeowner's have a positive financial incentive to prepay their mortgage.