Prepayment and Delinquency in the Mortgage Crisis Period


John Krainer

Elizabeth Laderman

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2011-25 | September 1, 2011

We study the interaction of borrower mortgage prepayment and mortgage delinquency during the period between 2001 and 2010. We show that when house prices flattened and began their subsequent decline, borrowers had increasingly slow prepayments and that this decline in prepayment rates roughly coincided with the sharp increase in their delinquency rates. Low credit score borrowers, in particular, display a pronounced negative correlation between default rates and prepayment rates. Shortfalls of actual prepayment rates from predicted rates based on an estimated prepayment model suggest that, in addition to the effects of declining house prices, tighter lending standards also may have played a role in weak prepayment activity.

Article Citation

Laderman, Elizabeth, and John Krainer. 2011. “Prepayment and Delinquency in the Mortgage Crisis Period,” Federal Reserve Bank of San Francisco Working Paper 2011-25. Available at