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Screening Mortgage Default Risk
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Book Synopsis Screening Mortgage Default Risk by : Danny Ben-Shahar
Download or read book Screening Mortgage Default Risk written by Danny Ben-Shahar and published by . This book was released on 2006 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study developed a unified framework for theoretically analyzing a set of mortgage attributes that screens borrower types according to their unobservable default risk. In the presence of asymmetric information, a self-selection process is attained, where lower default risk type borrowers choose a mortgage loan with constant over graduated payment, constant over price-level-adjusted payment, adjustable over fixed rate, low over high loan-to-value ratio, and short over long maturity. The study thus examines, among others, various mortgage attributes, which have never previously been considered in the context of mortgage default under asymmetric information. Accordingly, the theoretical predictions produce further grounds for empirical research on mortgage default.
Book Synopsis Adjustable and Fixed Rate Mortgages as a Screening Mechanism for Default Risk by : Lisa Lipowski Posey
Download or read book Adjustable and Fixed Rate Mortgages as a Screening Mechanism for Default Risk written by Lisa Lipowski Posey and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how borrowers with different levels of default risk would self-select between Fixed Rate Mortgages (FRMs) and Adjustable Rate Mortgages (ARMs). We show that under asymmetric information, where the risk type of a borrower is private information to the borrower and not known by the lender, the unique equilibrium may be a separating equilibrium in which the high-risk (low-risk) borrowers choose ARMs (FRM's). Thus, the borrower's mortgage choice will serve as a signal of default risk, enabling lenders to screen high-risk and low-risk borrowers. It is possible for the separating equilibrium to yield positive economic profits for lenders in a competitive market. It is also possible to have a unique pooling equilibrium where all borrowers choose either FRMs or ARMs. The model implies that an increase in the proportion of high risks will increase the likelihood of a separating equilibrium where both mortgage types are offered. Also a uniform downward shift in the expected change in the interest rate or an increase in borrowers' current or future incomes make ARMs more attractive for both types of borrowers.
Book Synopsis What Drives Mortgage Default Risk in Europe and the U.S.? by : Mr. Marco Gross
Download or read book What Drives Mortgage Default Risk in Europe and the U.S.? written by Mr. Marco Gross and published by International Monetary Fund. This book was released on 2022-04 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present an analysis of the sensitivity of household mortgage probabilities of default (PDs) and loss given default (LGDs) on unemployment rates, house price growth, interest rates, and other drivers. A structural micro-macro simulation model is used to that end. It is anchored in the balance sheets and income-expense flow data from about 95,000 households and 230,000 household members from 21 EU countries and the U.S. We present country-specific nonlinear regressions based on the structural model simulation-implied relation between PDs and LGDs and their drivers. These can be used for macro scenario-conditional forecasting, without requiring the conduct of the micro simulation. We also present a policy counterfactual analysis of the responsiveness of mortgage PDs, LGDs, and bank capitalization conditional on adverse scenarios related to the COVID-19 pandemic across all countries. The economics of debt moratoria and guarantees are discussed against the background of the model-based analysis.
Book Synopsis Default, Credit Scoring, and Loan-to-Value by : Danny Ben-Shahar
Download or read book Default, Credit Scoring, and Loan-to-Value written by Danny Ben-Shahar and published by . This book was released on 2005 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Consistent with existing literature, we first show that when borrowers' default probability on the mortgage loan is unobservable to the lender, the latter can screen borrowers by their combined choice of loan-to-value (LTV) ratio and interest rate. We further demonstrate that when borrowers also signal their default risk by acquiring a credit score, then a combined separating signaling and screening equilibrium is attained. If the signaling cost is sufficiently small, the combined signaling and screening equilibrium dominates the screening only equilibrium under both competitive and non-competitive market frameworks. However, while, under the competitive setting, borrowers benefit from constituting a credit scoring signaling system, the prospective gain is shifted to lenders under collusion. Finally, we show that under both competitive and non-competitive combined signaling and screening equilibria, high and low risk borrowers, while acquiring distinct credit scores (and therefore paying different interest rates) might realize higher, lower, or identical LTV ratios. Hence, any empirical test of the relation between LTV ratio and default risk must incorporate the interrelation among the LTV ratio, credit score, and interest rate.
Book Synopsis An Empirical Investigation of the Causes of Mortgage Default Risk by : Paul Bachman
Download or read book An Empirical Investigation of the Causes of Mortgage Default Risk written by Paul Bachman and published by . This book was released on 1977 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Mortgage Default and Mortgage Valuation by : John Krainer
Download or read book Mortgage Default and Mortgage Valuation written by John Krainer and published by DIANE Publishing. This book was released on 2010-10 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors develop an equilibrium valuation model that incorporates optimal default to show how mortgage yields and lender recovery rates on defaulted mortgages depend on initial loan-to-value (LTV) ratios. The analysis treats both the frictionless case and the case in which borrowers and lenders incur deadweight costs upon default. The model is calibrated using data on California mortgages. Given reasonable parameter values, the model does a surprisingly good job fitting the risk premium in the data for high LTV mortgages. Thus, from an ex ante perspective, the authors do not find strong evidence of systematic underpricing of default risk in the run-up to the housing market crisis. Charts and tables.
Book Synopsis Stress Testing and Calibration of Macroprudential Policy Tools by : Lucyna Gornicka
Download or read book Stress Testing and Calibration of Macroprudential Policy Tools written by Lucyna Gornicka and published by . This book was released on 2020-08-14 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a semi-structural model of default risk, which is a function of loan and borrower characteristics, economic conditions, and the regulatory environment. We use this model to simulate bank credit losses for stress-testing purposes and to calibrate borrower-based macroprudential tools. The proposed approach is very flexible and is particularly useful when there is limited history of crisis episodes, when crises bring unanticipated shocks where past tail events offer little guidance and when structural shocks or changes in financial regulations have altered the loan default process. We apply the model to quantify mortgage lending risk in two distinct mortgage markets. For each application, we show a range of modeling adjustments that can be made to capture country-specific institutional features. The model uses bank portfolio data broken down by risk bucket and vintage, which enables us to take explicit account of the loan life cycle and to incorporate the housing and economic cycles. This feature facilitates a timely assessment of banks' loss-absorbing capacity and the buildup of systemic risk conditional on policy. It also enables counterfactual analysis and the evaluation of macroprudential policy interventions.
Book Synopsis The Effect of Automated Underwriting on the Profitability of Mortgage Securitization by : Wayne Passmore
Download or read book The Effect of Automated Underwriting on the Profitability of Mortgage Securitization written by Wayne Passmore and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Lenders Make Less-Informed Investments in High-Growth Housing Markets? by : Sophia Chen
Download or read book Do Lenders Make Less-Informed Investments in High-Growth Housing Markets? written by Sophia Chen and published by International Monetary Fund. This book was released on 2021-05-27 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nonlocal mortgage lenders with greater exposure to high-growth housing markets accept fewer loan applications in these markets and experience greater stock return volatility. When these lenders expand to high-growth markets, they also ration credit to a significantly greater degree than when they ex-pand to other markets. Mean-variance analyses show that nonlocal lenders’ exposure to high-growth markets is associated with more risk, more efficiency, and more return on mortgage portfolios. Overall, these results imply that expansion to high-growth markets leads to a decline in screening and riskier investment by nonlocal lenders, which may reflect a risk–return tradeoff in their portfolio strategy.
Book Synopsis Signaling-Screening Equilibrium in the Mortgage Market by : Danny Ben-Shahar
Download or read book Signaling-Screening Equilibrium in the Mortgage Market written by Danny Ben-Shahar and published by . This book was released on 2008 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The signaling model of Spence (1973a) and the screening model of Rothchild-Stiglitz (1976) have been separately used to explain economic phenomena when there is asymmetric information. In the real world, however, situations of asymmetric information often simultaneously involve signaling and screening. In this paper,we combine signaling and screening mechanisms and demonstrate a signaling-screening separating equilibrium. We also show the conditions under which the signaling-screening equilibrium is Pareto superior to a screening-only equilibrium. We present the analysis within the framework of mortgage markets.In our model,borrowers acquire different credit records,which signal their default risk type to lenders. Credit records, however, are imperfect signals as they only partially separate borrowers' risk types,clustering them into subsets. Lenders screen each subset by offering menus of mortgage loan contracts with varying pairs of risk premium and maturity. Borrowers,then,self-select by choosing particular contracts from the menu. In equilibrium,safer (riskier) borrowers maintain a better (worse) credit record. In subsets with equal credit records,they choose shorter (longer) maturity and lower (higher)risk premium mortgage loan contracts. Furthermore,mortgage terms are always Pareto superior in a signaling-screening equilibrium. If the social cost of signaling is sufficiently small,the signaling-screening equilibrium Pareto dominates a corresponding screening-only equilibrium.
Download or read book Mortgages written by Tobias Neumann and published by . This book was released on 2018 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Default correlation is a key driver of credit risk. In the Basel regulatory framework it is measured by the asset value correlation parameter. Though past studies suggest that the parameter is over-calibrated for mortgages -- generally the largest asset class on banks' balance sheets -- they do not take into account bias arising from small samples or non-Gaussian risk factors. Adjusting for these biases using a non-Gaussian, non-linear state space model I find that the Basel calibration is appropriate for UK and US mortgages. This model also forecasts mortgage default rates accurately and parsimoniously. The model generates value-at-risk estimates for future mortgage default rates, which can be used to inform stress-testing and macroprudential policy.
Book Synopsis Testing for Adverse Selection and Moral Hazard in Consumer Loan Markets by : Wendy Edelberg
Download or read book Testing for Adverse Selection and Moral Hazard in Consumer Loan Markets written by Wendy Edelberg and published by . This book was released on 2004 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Consumer Credit Models by : Lyn C. Thomas
Download or read book Consumer Credit Models written by Lyn C. Thomas and published by OUP Oxford. This book was released on 2009-01-29 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: The use of credit scoring - the quantitative and statistical techniques to assess the credit risks involved in lending to consumers - has been one of the most successful if unsung applications of mathematics in business for the last fifty years. Now with lenders changing their objectives from minimising defaults to maximising profits, the saturation of the consumer credit market allowing borrowers to be more discriminating in their choice of which loans, mortgages and credit cards to use, and the Basel Accord banking regulations raising the profile of credit scoring within banks there are a number of challenges that require new models that use credit scores as inputs and extensions of the ideas in credit scoring. This book reviews the current methodology and measures used in credit scoring and then looks at the models that can be used to address these new challenges. The first chapter describes what a credit score is and how a scorecard is built which gives credit scores and models how the score is used in the lending decision. The second chapter describes the different ways the quality of a scorecard can be measured and points out how some of these measure the discrimination of the score, some the probability prediction of the score, and some the categorical predictions that are made using the score. The remaining three chapters address how to use risk and response scoring to model the new problems in consumer lending. Chapter three looks at models that assist in deciding how to vary the loan terms made to different potential borrowers depending on their individual characteristics. Risk based pricing is the most common approach being introduced. Chapter four describes how one can use Markov chains and survival analysis to model the dynamics of a borrower's repayment and ordering behaviour . These models allow one to make decisions that maximise the profitability of the borrower to the lender and can be considered as part of a customer relationship management strategy. The last chapter looks at how the new banking regulations in the Basel Accord apply to consumer lending. It develops models that show how they will change the operating decisions used in consumer lending and how their need for stress testing requires the development of new models to assess the credit risk of portfolios of consumer loans rather than a models of the credit risks of individual loans.
Book Synopsis Evidence and Innovation in Housing Law and Policy by : Lee Anne Fennell
Download or read book Evidence and Innovation in Housing Law and Policy written by Lee Anne Fennell and published by Cambridge University Press. This book was released on 2017-08-29 with total page 357 pages. Available in PDF, EPUB and Kindle. Book excerpt: This interdisciplinary volume illuminates housing's impact on both wealth and community, and examines legal and policy responses to current challenges. Also available as Open Access.
Book Synopsis Complex Mortgages (CM) by : Gene Amromin
Download or read book Complex Mortgages (CM) written by Gene Amromin and published by DIANE Publishing. This book was released on 2011 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: CM became a popular borrowing instrument during the bullish housing market of the early 2000s but vanished rapidly during the subsequent downturn. These non-traditional loans (interest only, negative amortization, and teaser mortgages) enable households to postpone loan repayment compared to traditional mortgages and hence relax borrowing constraints. But, they increase household leverage and heighten dependence on mortgage refinancing. CM were chosen by prime borrowers with high income levels seeking to purchase expensive houses relative to their incomes. Borrowers with CM experience substantially higher ex post default rates than borrowers with traditional mortgages with similar characteristics. Illus. This is a print on demand report.
Book Synopsis Default Risk and Real Estate Prices by : Karl E. Case
Download or read book Default Risk and Real Estate Prices written by Karl E. Case and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article makes the case for using index-based futures and options driven by region-specific movements in house prices as the basis for hedging mortgage default risk. Taking the view that mortgage holders write put options on real estate assets, the first part of the article lays out the theoretical case for a hedging strategy based on house price changes. The second part reviews the empirical literature on default risk and uses data from the Mortgage Bankers Association of America and repeat sales indices to test for the significance of house price movements in predicting mortgage default. The results suggest that between 1975 and 1993, periods of high default rates strongly follow real estate price declines or interruptions in real estate price increases. The relation between price declines and foreclosure rates is modeled using a distributed lag. The results support the case for a hedging strategy based on house price changes.
Book Synopsis Mortgage Defaults by : Juan Carlos Hatchondo
Download or read book Mortgage Defaults written by Juan Carlos Hatchondo and published by International Monetary Fund. This book was released on 2012-01-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper incorporates house price risk and mortgages into a standard incomplete market (SIM) model. The model is calibrated to match U.S. data and accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. The average coefficients that measure the agents' ability to self-insure against income shocks are similar to those of a SIM model without housing but housing increases the values of these coefficients for younger agents. The response of consumption to house price shocks is minimal. The introduction of minimum down payments or income garnishment benefits a majority of the population.
