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Commercial mortgage prepayments under heterogeneous prepayment penalty structures
- Article from:
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The Journal of Real Estate Research
- Article date:
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July 1, 2003
- Author:
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Copyright informationCopyright American Real Estate Society Jul-Sep 2003. Provided by ProQuest LLC. (Hide copyright information)
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Abstract Much of the literature on pricing commercial mortgages and commercial mortgage-backed securities has assumed homogeneity in prepayment penalty structure. This study provides evidence that such an assumption is inappropriate and examines the effect of penalty structures observed in actual contracts. After conducting preliminary simulations, hazard models estimated from data on 1,165 multifamily mortgage loans are presented to show how empirical prepayment rates vary with alternative penalty structures. While yield maintenance and lockout provisions are relatively more effective than fixed or step down structures in reducing or postponing prepayment, none completely eliminates the ...
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