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dc.contributor.authorHeitfield, Erik
dc.contributor.authorSabarwal, Tarun
dc.date.accessioned2012-03-26T22:25:55Z
dc.date.available2012-03-26T22:25:55Z
dc.date.issued2004
dc.identifier.citationHeitfield, Erik and Tarun Sabarwal (2004): “What Drives Default and Prepayment on Subprime Auto Loans?” The Journal of Real Estate Finance and Economics, 29(4), 457-477. http://dx.doi.org/10.1023/B:REAL.0000044023.02636.e6.
dc.identifier.urihttp://hdl.handle.net/1808/8825
dc.descriptionThis is the Author's Final Draft. The original published version is available at: http://dx.doi.org/10.1023/B:REAL.0000044023.02636.e6.
dc.description.abstractThis paper uses novel data on the performance of loan pools underlying asset backed securities to estimate a competing risks model of default and prepayment on subprime automobile loans. We find that prepayment rates increase rapidly with loan age but are not affected by prevailing market interest rates. Default rates are much more sensitive to aggregate shocks than are prepayment rates. Increases in unemployment precede increases in default rates, suggesting that defaults on subprime automobile loans are driven largely by shocks to household liquidity. There are significant differences in the default and prepayment rates faced by different subprime lenders. Those lenders that charge the highest interest rates experience the highest default rates, but also experience somewhat lower prepayment rates. We conjecture that there is substantial heterogeneity among subprime borrowers, and that different lenders target different segments of the subprime market. Because of their higher default rates, loans that carry the highest interest rates do not appear to yield the highest expected returns.
dc.language.isoen
dc.publisherSpringer-Verlag
dc.titleWhat Drives Default and Prepayment on Subprime Auto Loans?
dc.typeArticle
kusw.kuauthorSabarwal, Tarun
kusw.kudepartmentEconomics
kusw.oastatusfullparticipation
dc.identifier.doi10.1023/B:REAL.0000044023.02636.e6.
kusw.oaversionScholarly/refereed, author accepted manuscript
kusw.oapolicyThis item meets KU Open Access policy criteria.
dc.rights.accessrightsopenAccess


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