Irrational Woodheads Impact Mortgage Pricing, Changing Valuation by Up to 3%
The article explores why some people don't pay off their mortgages early, even when it would save them money. The researchers created a new model to study this behavior, called the ECML model. By analyzing a large group of mortgage holders, they found that some borrowers act irrationally, which affects the pricing of mortgage-related investments. Their model improved predictions of mortgage pool prices by up to 3%.