Ruthless prepayment? Evidence from multifamily mortgages

James R. Follain, Jan Ondrich, Gyan P. Sinha

Research output: Contribution to journalArticlepeer-review

23 Scopus citations


Estimates of a prepayment function for multifamily mortgages are reported in this paper. These are among the first attempts to estimate such a function; most previous work along these lines focuses on single family mortgages. A further distinguishing aspect of the paper is its attempt to incorporate the impact of unobservable factors on the mortgage refinancing decision. A variant of the maximum likelihood procedure first developed by Meyer [Ph.D. thesis, MIT (1987)] is employed. The results indicate an overall positive duration dependence for the conditional prepayment rate. The estimated response of prepayments to a change in the market rate of interest is significant with the expected sign; it is also larger once the effect of unobserved heterogeneity is taken into account. Nonetheless, the magnitude of the response is substantially less than that predicted by the ruthless option pricing model.

Original languageEnglish (US)
Pages (from-to)78-101
Number of pages24
JournalJournal of Urban Economics
Issue number1
StatePublished - Jan 1997

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies


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