Modelling households’ financial vulnerability with consumer credit and mortgage renegotiations

Attinà, Carmela Aurora; Franceschi, Francesco; Michelangeli, Valentina

doi:10.34196/ijm.00213

Cited by 9 publications

(9 citation statements)

References 3 publications

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“…These results suggest that the considered borrower-based measures, calibrated at the levels proposed in this paper, which are in line with the experience of other European countries, would have only marginally increased the resilience of the Italian financial system. This result is largely related to the already well documented financial resilience of the Italian households (Attinà, Franceschi, and Michelangeli, 2020), and to the current low average levels of LTV and LSTI in Italy. Moreover, the results should also be interpreted having in mind that our calibration, despite adopting an cutting-edge methodology, is for some variables limited to their first moment due to the lack of more granular data.…”

mentioning

confidence: 77%

“…The overall low magnitude of these effects reflects the well documented financial resilience of Italian households (Attinà, Franceschi, and Michelangeli, 2020), and their low debt compared to other European countries. The baseline number of defaults is already quite low, even before any policy intervention, and it reflects the long-run average flow of bad loans (mortgages) for Italian households.…”

Section: Policy Shocksmentioning

confidence: 98%

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Macroprudential Policy Analysis via an Agent Based Model of the Real Estate Sector

et al. 2021

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In this paper, we extend and calibrate with Italian data the Agent-based model of the real estate sector described in Baptista et al., 2016. We design a novel calibration methodology that is built on a multivariate moment-based measure and a set of three search algorithms: a low discrepancy series, a machine learning surrogate and a genetic algorithm. The calibrated and validated model is then used to evaluate the effects of three hypothetical borrower-based macroprudential policies: an 80 per cent loan-to-value cap, a 30 per cent cap on the loan-service-to-income ratio and a combination of both policies. We find that, within our framework, these policy interventions tend to slow down the credit cycle and reduce the probability of defaults on mortgages. However, with respect to the Italian housing market, we only find very small effects over a five-year horizon on both property prices and mortgage defaults. This latter result is consistent with the view that the Italian household sector is financially sound. Finally, we find that restrictive policies lead to a shift in demand toward lower quality dwellings.

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confidence: 77%

Section: Policy Shocksmentioning

confidence: 98%

Macroprudential Policy Analysis via an Agent Based Model of the Real Estate Sector

et al. 2021

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“…We consider all indebted households and those with low income, which are more likely to experience financial difficulties in the face of a crisis (Bryan et al 2010;European Commission 2008;Hartfree and Collard 2014), and if there is a negative income shock, they are typically more likely to fall behind with their payments. To capture the higher risks stemming from these households, for instance, the Bank of Italy uses an indicator of financial vulnerability that accounts also for the income level (Michelangeli and Pietrunti 2014;Attinà et al 2020).…”

Section: The Risks In Consumer Credit Expansion: Evidence From Microdatamentioning

confidence: 99%

The Expansion of Consumer Credit in Italy and the Main Euro Area Countries

Magri¹,

Michelangeli²,

Pastorelli³

et al. 2021

European Review

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Since 2015, consumer loans have been rising fast in France, Germany, Spain and Italy. This article aims to provide broad evidence of the differences across countries in light of the recent consumer credit growth, exploring demand and supply factors typically related to this type of loan, and assessing the building up of financial risks. The expansion was connected in all countries with the increasing credit demand, specifically for consumer durables, and – for Italy and Spain, which experienced stronger credit tightening during the past crises – also with the easing of supply conditions. Risks stemming from the growth of consumer credit are mitigated by its lower incidence, compared with mortgages, on households’ total debt and income; exposure to interest rate risk is also decreasing owing to the high share of fixed-rate contracts. There is wide risk heterogeneity across countries, with Italy and Spain having the highest share of delinquent households (even for fewer than 90 days). In Italy, however, debt is increasingly concentrated among more affluent households, which are better able to withstand negative economic shocks. This trend is sustaining the drop in the ratio of new non-performing consumer loans.

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“…Intuitively, old clients already know the parent and for them the information effect is limited, while switchers are less aware and can fully enjoy the benefits of branding. The result is relevant because recourse to mortgage renegotiations has become quite popular in Italy, reaching 17 per cent of the new loans origination in 2018 (Attinà et al 2020). 12 With this empirical evidence in mind, we derive a life-cycle model and quantify the effect of brand name on consumers' search costs and households' transition across lenders.…”

Section: Introductionmentioning

confidence: 99%

“…This lead to an acceleration in mortgage renegotiations, particularly pronounced since 2015. 13 In Italy, mortgage renegotiations account for about 17 per cent of new loans origination in 2018 (Attinà et al 2020). 14 The premium could reflect consumer's inertia, inattention, loyalty, lack of information or other search frictions (Delgado-Ballester & Munuera-Alemán 2001;Banerjee & Bandyopadhyay 2003;White & Yanamandram 2004;Lewis & Soureli 2006;Su 2009;De Clippel et al 2014;Ericson 2014;Miravete & Palacios-Huerta 2014;Andersen et al 2015;Matějka & McKay 2015;Seenivasan et al 2016;Ho et al 2017;Ozdemir et al 2020).…”

Section: Introductionmentioning

confidence: 99%

Information or Persuasion in the Mortgage Market: The Role of Brand Names

Michelangeli

Carella

2021

SSRN Journal

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The role, informative or persuasive, of brand names in driving purchasing decisions is very much under debate. We exploit the rebranding of a mortgage lender to analyse households' choice behaviour in response to brand popularity. Loan-level data on new mortgages suggest that (1) brand awareness reduces the equilibrium price of residential mortgage contracts and (2) the reduction mainly reflects consumers' selection of cheaper products due to better information. Our calibrated model implies an overall gain equal to 6 per cent of the initial loan amount and a roughly 10 percentage point increase in the share of households that shift to cheaper lenders.

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Modelling households’ financial vulnerability with consumer credit and mortgage renegotiations

Cited by 9 publications

References 3 publications

Macroprudential Policy Analysis via an Agent Based Model of the Real Estate Sector

Macroprudential Policy Analysis via an Agent Based Model of the Real Estate Sector

The Expansion of Consumer Credit in Italy and the Main Euro Area Countries

Information or Persuasion in the Mortgage Market: The Role of Brand Names

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