Physical Sciences and Mathematics Commons^™

Mortgage Transition Model Based On Loanperformance Data, Shuyao Yang

Arts & Sciences Electronic Theses and Dissertations

The unexpected increase in loan default on the mortgage market is widely considered to be one of the main cause behind the economic crisis. To provide some insight on loan delinquency and default, I analyze the mortgage performance data from Fannie Mae website and investigate how economic factors and individual loan and borrower information affect the events of default and prepaid. Various delinquency status including default and prepaid are treated as discrete states of a Markov chain. One-step transition probabilities are estimated via multinomial logistic models. We find that in general current loan-to-value ratio, credit score, unemployment rate, and interest …