Deleveraging and mortgage curtailment

Document Type

Article

Publication Date

11-1-2015

Abstract

Using monthly loan-level data, individual partial prepayments (curtailments) from January 2001 to June 2011 are observed for mortgages in twenty metropolitan statistical areas. Contrary to some earlier assertions, American homeowners now frequently commit funds towards their mortgage payments in excess of the amount due; over 30% of loans outstanding have made at least one curtailment payment. After controlling for borrower and loan-level variables, we show that the latent propensity to curtail has steadily risen from 2003 to 2006 and remains at elevated levels. Therefore, curtailment provides an example of consumer deleveraging behavior that began prior to the Great Recession.

Publication Source (Journal or Book title)

Journal of Banking and Finance

First Page

60

Last Page

75

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