onsumer Mortgage Prepayment Behavior within the U.S. Economy

his essay uses Bivariate-Choice Regression Method to explain consumer mortgage prepayment behavior within the U.S. Economy. The paper uses economic survey data from Panel Study of Income Dynamics from Michigan University, which traced the mortgage prepayment behavior and income dynamics of more than 6000 representative U.S. households over a 12-year period. To estimate the effects of dynamic housing value on mortgage prepayment, the author innovatively computed a covariance measure in the Bivariate-Choice Regression Method, which can incorporates the interaction effect between dynamic house value and household income. The results show that homeownership has a diversification effect on overall consumer portfolio risk even with the presence of mortgage.