Andrei Shelest to guest at QFRG and DSLab seminar – May 18

A seminar organized by the QFRG and DSLab research centers will be held on May 18 at 5:00 PM. The session will focus on the topic: “A Mortgage Prepayment Study Using Survival Analysis and Time-Varying Determinants.”

Andrei Shelest will discuss how detailed mortgage data can be used to track when and why customers choose to prepay their loans. He will also explain how combining borrower characteristics with economic conditions helps to better measure and predict risk in banking portfolios.

The seminar will be held in a hybrid format. You are welcome to attend in person (room B002, WNE UW) or join remotely. Anyone interested in joining online is kindly asked to contact: &MhS-V1tzoAw0bs4'KJ`YI]#[t@XAw6vV7g+]9XkAh+@iJ2.

The presentation will last approximately 45 minutes, followed by a discussion. We kindly ask you to arrive or log in early.

We invite you to read the abstract available below.

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Abstract

A critical role in the functioning of housing and financial markets, involving a complex interaction between various factors, is played by mortgage prepayment and its behaviour. This study analyzes mortgage prepayment behavior in the United States using loan-level data from the Freddie Mac Single-Family dataset covering 1999-2023. We apply survival analysis techniques like Cox proportional hazard model for time-varying covariates, as well as Aalen-Johansen, Kaplan-Meier estimators, and the baseline cumulative hazard function, to estimate the effect of borrower characteristics and macroeconomic variables on prepayment hazard over time. Several important characteristics influencing prepayment behavior have been identified: the credit score, a borrower-specific feature; macroeconomic variables including housing price appreciation, interest rate spread, inflation, unemployment. A statistically significant interaction between borrower credit score segments, mortgage interest rates and government refinancing or stimulus policies has been found. These findings demonstrate the dynamic nature of mortgage prepayment behavior, highlighting the importance of both individual borrower characteristics like the credit score and shifting economic conditions in shaping prepayment risk over time.