Explore the complexities of mortgage valuation and prepayment modeling in this 72-minute lecture from Yale University's Financial Theory course. Delve into the intricacies of mortgages, including the refinancing option that distinguishes them from coupon bonds. Learn about different approaches to forecasting prepayments, from traditional curve-fitting methods to modern agent-based models that account for individual behavior and heterogeneity. Understand why mortgages are considered risky securities even without default risk, and examine strategies for hedging these risks. The lecture covers mortgage basics, refinancing complications, non-contingent forecasting, behavioral rationalization models, and risk management in the mortgage market.