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Answer: Probability of 30-day delinquency
An **incentive function** measures the borrower's economic motivation to prepay, especially through refinancing. It typically includes variables such as: - the **present value of payment savings** from refinancing, - the **rate differential** between the existing mortgage and current market rates, - the **monthly payment reduction** obtained by refinancing. The **probability of 30-day delinquency** is not an incentive for voluntary prepayment; it is related to credit performance and default risk, not refinance motivation.
Author: Manit Arora
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Q-54.1 Mortgage prepayment variables: Each of the following is an example of a mortgage loan INCENTIVE FUNCTION EXCEPT for:
A
Present value of reduction in mortgage payments if loan is refinanced
B
Difference between existing mortgage rate and current coupon rate
C
Reduction in monthly payment level as a result of refinancing
D
Probability of 30-day delinquency
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