Impact of Early Repayment Risk on Domestic MBS Basic Assets

Abstract

It is important to reconfirm the existing relationship between previously studied economic variables and early repayment rates and to identify additional variables that increase the explanatory power of the model. The purpose of this study is to investigate the relationship between premature repayment rate and influence variables, and then analyze the dynamic relationship between prepayment rate and influence variables by constructing a Vector Auto Regression (VAR) model. The variables analyzed to affect prepayment rates in this study were construction and positive macroeconomic events, especially inflation. As a result of the analysis of variance analysis, mortgage interst rate was the most influential variable for early repayment rate. This suggests that interest rate policy should be effective in the short-term, and in the mid- to long-term, if the MBS price or market is abnormal, it should be responded to by changing the policy related to the construction industry.