Household’s optimal mortgage and unsecured loan default decision

Kim, Jiseob

doi:10.1016/j.jmacro.2015.05.002

Cited by 14 publications

(9 citation statements)

References 35 publications

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“…Homeowners default on the basis of comparison between the costs and returns inherent in the continuation or termination of a mortgage contract (cf. Neuteboom, 2008;Kim, 2015;Chan et. al., 2015;Connor and Flavin, 2015;Nield, 2015).…”

Section: Causes Of Default In Repayment Of Mortgagementioning

confidence: 99%

Risks in homeownership: a perspective on The Netherlands

Teye

Haan

Elsinga

et al. 2017

IJHMA

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Purpose The purpose of this paper is to explore the risk factors in homeowners from the individual household’s perspectives within the owner-occupied housing sector of The Netherlands. Risk in home ownership from mortgage providers’ perspectives has received tremendous attention than individual home owner’s perspectives in existing literature following the financial crisis in 2007/2008 within the euro zone. Design/methodology/approach The paper adopted a broader review of extent literature on the different concepts and views on risk in homeownership. These concepts are unified into a framework that enhances our understanding of the perceived sophisticated risk in owner-occupier with focus on The Netherlands. Findings From the perspective of the homeowner, two main types of risks were identified: default payment and property price risk. The paper has unearthed a quantum number of factors which underline the above risks. These factors relate to the initial amount of mortgage loan taken out, the future housing expenses and the income development of the owner-occupier. Family disintegration is identified, as one of the main causes of mortgage default and that of property price risk are mainly influenced by income levels, interest rates and conditions in the social and private rental sectors. Research limitations/implications Findings of the paper are based on review of the extant literature in the context of the Dutch housing market. Possible rigorous situational analysis using other tools are recommended for further research. Originality/value This paper contributes to the much needed body of knowledge in the owner-occupied sector and provides a better understanding of risk in home ownership from the individual perspectives.

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Section: Causes Of Default In Repayment Of Mortgagementioning

confidence: 99%

Risks in homeownership: a perspective on The Netherlands

Teye

Haan

Elsinga

et al. 2017

IJHMA

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“…The authors find that a moderate decline in mortgage payments ($150 per month) induces a significant drop in mortgage defaults, a more than 10% increase in auto lending, and an increase of 5.7 points in borrowers' credit scores within 2 years. A theoretical work by Kim (2015) suggests that mortgage default rates decrease with modifications, but unsecured loan charge-off rates increase. The author suspects that when house price is persistently low, along with income shock, a household is more likely to default on its unsecured debt while preserving its home.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

“…The author suspects that when house price is persistently low, along with income shock, a household is more likely to default on its unsecured debt while preserving its home. Kim's (2015) work provides a useful theoretical framework to study the optimal borrowing and default decisions of households, but there is a lack of empirical tests of the theoretical model. In addition to the studies more closely related to consequences of loan modifications, this study on access to credit and credit performance in the Overall, the existing literature on loan modifications primarily focuses on the incidence of loan modifications and the preventive effects of loan modifications on mortgage redefault.…”

Section: Background and Literature Reviewmentioning

confidence: 99%

“…While prior empirical studies have provided generally consistent evidence on the preventive effect of loan modifications on mortgage default, evidence on the broad consequences of loan modifications has been fairly limited. One concern is the possible negative spillover effects of modifications on borrowers' future access to credit and performance on unsecured debt (Kim 2015). With a better chance of preserving their homes after receiving modifications, borrowers may be more likely to borrow more or to delay the payments on other debts, which could hurt the borrowers' creditability.…”

Section: Introductionmentioning

confidence: 99%

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Borrower credit access and credit performance after loan modifications

Ding

2017

Empir Econ

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While the preventive effect of loan modifications on mortgage default has been well-documented, evidence on the broad consequences of modifications has been fairly limited. Based on two unique loan-level data sets with borrower credit profiles, this study reports novel empirical evidence on how homeowners manage their credit before and after receiving modifications. The paper has several main findings. First, loan modifications improve borrowers' overall credit standing and access to credit. Modifications that provide principal reduction, rate reduction, or greater payment relief, as well as those received by borrowers not in financial catastrophe, lead to a larger improvement in borrowers' credit rating than others. Second, loan modifications lead to a slight increase in borrowers' debts, primarily on home equity line of credit (HELOC) accounts and auto loans. Third, borrowers' performance on nonmortgage accounts, however, has not been negatively impacted by modifications. This study demonstrates that interventions designed to improve household balance sheets could have a direct and sizable impact on borrower financial outcomes.

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“…Kim [9] analyzes how mortgage loan modification policies, after a sudden drop in house prices, affect household choices in the mortgage and unsecured loan markets. The quantitative exercise shows that the government-driven mortgage modification program, initiated in 2009, reduces the mortgage default rate by 0.27% points.…”

Section: Introductionmentioning

confidence: 99%

Mortgage Loans and Impacts of the Global Pandemic COVID-19 in the Globalized Society

Svobodová

Hedvičáková

2021

SHS Web of Conf.

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Research background: The paper is focused on the financial product, esp. on mortgage loans that are often used products in the field of long-term financing in the Czech Republic. These products provide commercial banks and other financial institutions on the Czech globalized financial market. Purpose of the article: The aim of the paper is to analyze the situation on the globalized financial market focused on the mortgage loans and loans from building societies in view of the global Covid-19 pandemic. Methods: Firstly a theoretical background with a review of the literature is provided, then research methodology is described, the key part brings results of development of mortgage loans, development of interest rates and the analysis of the current situation on the mortgage loan market with estimation of future development. The last part is focused on the comparison of selected mortgage loans provided by five financial institution. The article is based on primary and secondary sources. A detailed research together with the analysis and critical assessment of accessible materials will enable to identify the main objectives in the field of study. Findings & Value added: Interest rates on mortgage loans have on the Czech market downward trend in the last years. The best conditions scored in 2019 loan from building society Modrá pyramida. The overall situation in 2020 cause lower interest rates in the mortgage loans. Lower annual percentage rate of charge and smaller monthly mortgage loan repayment and the total overpayment also correspond.

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Household’s optimal mortgage and unsecured loan default decision

Cited by 14 publications

References 35 publications

Risks in homeownership: a perspective on The Netherlands

Risks in homeownership: a perspective on The Netherlands

Borrower credit access and credit performance after loan modifications

Mortgage Loans and Impacts of the Global Pandemic COVID-19 in the Globalized Society

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