Incorporating Real World Decision Rules and Population
Dynamics in Behavioral Prepayment Modeling

Wesley Phoa, Ph.D.

This paper briefly describes an approach to prepayment modeling which attempts to represent the actual rules that borrowers used when deciding whether to refinance, and the details of pool composition as it affects relocation and refinancing behavior. This provides an explanation for burnout, and also a quantitative model of the relationship between prepayments and (e.g.) loan size and loan closing costs.