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The loan represents a 90 percent loan to project cost ratio with a flexible prepayment option.
The prepayment option would allow taxpayers to still be able to deduct the payment on their 2017 federal income taxes.
In addition, Fannie Mae recently enhanced their adjustable-rate mortgage (ARM) loans offering a variable rate/flexible prepayment option called Fannie Mae ARM 7-6.
We first isolate variables to capture the prepayment option.
But a prepayment option, bolstered by a recent IRS Private Letter Ruling, may be an attractive alternative to such plans--and avoid gift taxes altogether.
Accordingly, the prepayment option cost must be better reflected in current MSR multiples.
Pan, 1995, "An Arbitrage-Free Estimate of Prepayment Option Prices in Fixed-Rate GNMA Mortgage-Backed Securities", Real Estate Economics, 23:1-20
Arm's-length provisions can be negotiated so that the prepayment option benefits both parties.
Narrowing of the mortgage Treasury, yield spread normally occurs in an environment of rising rates as investors reassess the market value of the prepayment option in home mortgages, and that mechanism is playing out again.
Indeed, although prepayment may occur for extraneous reasons, such as job reassignment or change in family structure, it is the very availability of the prepayment option that makes it unlikely that default will occur for any reason other than that the cost of the mortgage now exceeds the fallen value of the borrower's property.
3) higher probability of refinancing for slower prepayers when prepayment option values are higher, because backward-recursive procedures do not permit tractable computation of option present values each period.
Since they were backed by residential mortgages that had a prepayment option, movements in interest rates caused changes in the speed of repayment.