An Emphasis on Underwriting Variables: A Look at Their Importance on Default & Prepayment of US Mortgages

Abstract

Abstract Since the Great Recession of the early 2000’s an added scrutiny has been placed on the US mortgage industry. This new focus has put an emphasis on the underwriting standards of mortgages. I hypothesize that mortgage underwriting guideline characteristics, or variables, are good indicators of potential loan defaults and prepayments. Using a newly available public dataset of loan-level characteristics and performance for home loans, I show that the existing standard variables used in mortgage underwriting are predictive in determining potential prepayment or default. My findings are consistent with existing research in mortgage literature that used more limited datasets.