Beyond the Transaction: Banks and Mortgage Default of Low-Income Homebuyers

Ergungor, O. Emre; Moulton, Stephanie

doi:10.1111/jmcb.12164

Cited by 24 publications

(15 citation statements)

References 48 publications

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“…Also related to our article are two recent studies that do not look at negative loan supply shocks but show how branch presence affects the transmission of other types of shocks across U.S. mortgage markets. These studies draw on previous work concluding that banks benefit from the ability to collect soft information about home mortgage borrowers through relationships with local borrowers and knowledge of the local economy (Loutskina and Strahan , Cortés , Ergungor and Moulton ). Gilje, Loutskina, and Strahan () find that a positive shock to local deposits due to the fracking boom causes multimarket banks to increase mortgage lending in other markets, but only those in which they have branches.…”

Section: Related Literaturementioning

confidence: 99%

The Cross‐Market Spillover of Economic Shocks through Multimarket Banks

Berrospide¹,

Black²,

Keeton³

2016

J of Money Credit Banking

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This study investigates the mortgage lending of banks operating in multiple U.S. metropolitan areas during the housing market collapse of 2007–09. We show that multimarket banks reduced local portfolio lending in response to high overall mortgage delinquencies in their other markets, consistent with the view that local economic shocks can be transmitted to other regions through banks’ internal capital markets. This spillover was greatest when the bank lacked a branch presence and when the market was highly peripheral to the bank in terms of its total mortgage lending. These effects were not fully offset by securitization or other portfolio lenders.

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Section: Related Literaturementioning

confidence: 99%

The Cross‐Market Spillover of Economic Shocks through Multimarket Banks

Berrospide¹,

Black²,

Keeton³

2016

J of Money Credit Banking

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“…The results indicate that interest rate does not affect home mortgage default probability. [15] [45] who document that interest rate does not affect credit risk. However, our findings are different from [46] who conclude that higher credit risks imply higher interest rates demanded by banks to compensate for the risk.…”

Section: Discussion A) the Impacts Of Credit Characteristics On Home mentioning

confidence: 99%

The Determinants of Home Mortgage Default Probability: The Effect of Loan and Borrower’s Characteristics

Rachmansyah¹,

Harijono²,

Prabowo³

2021

Proceedings of the First International Conference on Economics, Business and Social Humanities, ICONEBS 2020, November 4-5, 202

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Housing is one of the individuals' basic needs besides food and clothing, and house demand will increase continuously to respond to the increasing population. Consequently, the gaps between housing needs and availability (backlog) in Indonesia remains high. However, home mortgage default probability is still a crucial issue for banks. Investigating the factors that explain home mortgage default probability is important for banks to mitigate the credit default risk. Among these numerous factors, loan and borrowers' characteristics likely play significant roles in determining home mortgage probability. Hence, this study seeks to analyze the effects of credit and borrowers' characteristics on home mortgage default probability. One hundred and thirty-three mortgage customers of the Semarang Branch Office of Bank X are selected as the research sample through the purposive sampling method. Because the dependent variable has discrete values representing different loan qualities (from liquid to doubtful), the data is then analyzed using the ordered probit regression analysis. The results show that loan to value (LTV) is the credit characteristic that affects home mortgage default probability, implying that higher LTV ratios will increase home mortgage default. Meanwhile, education level is the borrower's characteristic that significantly affects home mortgage default probability. This study offers the following managerial implications. First, banks should consider their borrowers' education level. In this respect, education level is closely related to a broader perspective and the amount of income. Second, banks should also consider LTV when allocating home mortgages because it indicates potential borrowers' capacity to pay. Our findings inform banks to take potential borrowers' education levels into account when making home mortgage credit decisions. Education levels are closely related to broader perspectives and higher income. Meanwhile, LTV (a ratio between credit amount and property value) is related to the capacity to repay. Higher property values imply lower LTV ratios and eventually lower default risks. Consequently, banks have to consider borrowers' purchasing power in determining LTV ratios to enhance the probability of home mortgage repayment.

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“…For example, while land‐based eligibility criteria is used as a source of exogenous variation in Islam and Choe (2013), Dalla Pellegrina (2011), and Pitt and Khandker (1998), no universal eligibility criteria exist across institutions in Nepal. Similarly, the instruments based on measures of the distances between participants and banks or other facilities (Gitter and Barham, 2007; Ergungor and Moulton, 2014), may not be valid in the study that incorporates both formal and informal credit. The fixed effects approach can also potentially address the issue of self‐selection and provide an alternative way to assess a causal relationship.…”

Section: Econometric Modelmentioning

confidence: 99%

Borrowing channels, purposes, and household investment and consumption: evidence from Nepal

Kondratjeva

2021

Journal of Consumer Affairs

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Despite the expansion of the formal financial sector in recent decades, informal credit continues to play an important role in the financial lives of households in low‐income countries. Using panel data from nationally representative household surveys conducted in Nepal in 2003/04 and 2010/11, this paper investigates how borrowing from different channels (formal and informal) and for different purposes (production and consumption) is associated with household investment and consumption expenditure. Findings from a fixed effects regression analysis indicate that formal and informal loans are used to finance different spending needs, and intended credit purposes tend to reflect actual spending of borrowed funds. The level of household investment or consumption spending depends on the interaction between borrowing channels and purposes. This study can inform the efforts to improve household access to affordable and reliable financial services.

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Beyond the Transaction: Banks and Mortgage Default of Low-Income Homebuyers

Cited by 24 publications

References 48 publications

The Cross‐Market Spillover of Economic Shocks through Multimarket Banks

The Cross‐Market Spillover of Economic Shocks through Multimarket Banks

The Determinants of Home Mortgage Default Probability: The Effect of Loan and Borrower’s Characteristics

Borrowing channels, purposes, and household investment and consumption: evidence from Nepal

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