The bias stemmed regarding the high discount mortgages subject to help you major burnout consequences
(several.) Specifically, some other rates out-of mortgagors may be classified as quickly or slow due to the fact fundamental volatility of mortgage loans over time (so the prepayment option philosophy and you can optimal trigger cost) is assumed as other.
Analysis of these hypotheses are leftover to upcoming browse
(thirteen.) Plus in the place of the fresh new 1984-1988 interval overall performance where the rate-process design overvalued GNMAs because of the the common 0.03%, which had been mathematically insignificant away from 0 (t= 0.11), the common payment mistake otherwise bias of your own unadjusted model more the brand new 1990-1996 period was -1.03%, that has been mathematically extreme out of 0 (t= - six.30).
(14.) An effort was made to incorporate these burnout factors into the adjusted Murphy model by defining burned-out poo1s as those whose coupons had continuously exceeded the FHA rate over the prior 3 years. After subjectively examining the sample data and experimenting with different formulations and parameter values similar to those imposed by Boudoukh et al. (1997), the percentage of fast prepayers in a burned-out pool was assumed to equal 60% times a burnout factor B= [<1>.sup.Y], where Y is the number of years the coupon has been burned out (i.e., the number of years in excess of 3, in which the FHA rate has been continuously below the coupon rate), and F is the average difference between the coupon rate and the FHA rate over that burned-out period. The percentage of slow prepayers in such burned-out pools was assumed to equal 60% of the remaining refinancing mortgagors, and all remaining mortgagors were put into the non-refinancing group. 12% over all coupons.