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This article extends unobserved heterogeneity to the multinomial logit (MNL) model framework in the context of mortgages terminated by refinance, move or default. It tests for the importance of unobserved heterogeneity when borrower characteristics such as income, age and credit score are included to capture lender-observed heterogeneity. It does this by comparing the proportional hazard model to MNL with and without mass-point estimates of unobserved heterogeneous groups of borrowers. The mass-point mixed hazard (MMH) model yields larger and more significant coefficients for several important variables in the move model, whereas the MNL model without unobserved heterogeneity performs well with the refinance estimates. The MMH clearly dominates the alternative models in sample and out of sample. However, it is sometimes difficult to obtain convergence for the models estimated jointly with mass points.

We study the impact of green building on loans in the CMBS market. A hazard model shows green buildings carry 34% less default risk, all else equal. A matched‐sample analysis gives similar results. We attribute the effect to a loan‐to‐value channel, where risk is lowered by a green price premium. The benefit comes at least partly from the level of green achievement, not only the label itself. Loans on buildings that were green at loan origination have slightly better terms than loans on nongreen buildings. That difference is growing over time, but the effect is economically small compared to default risk.

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