A Study in Default Factors of Residential Mortgage Loans and Bank Revenue
Date Issued
2015
Date
2015
Author(s)
Su, Chia Yu
Abstract
Residential mortgage loans take most parts of consumer loan business and have been a main source of Bank profit in Taiwan. Credit risk management of housing loans thus become an important issue for financial institutions. How to deal with non-performing loan problems and reduce the default probability are no doubt the first step of well controlling the risk and raising the quality of loans. This research aims to identify the loan characteristics which are predictive of loan defaults, and fit the relationship between default rates and bank expected profit. We collected 10040 mortgage loans from a domestic commercial bank as research samples and employed Logistic regression model for testing the significance of variables. From the empirical results, the loan characteristics with forecasting power include loan-to-value ratios, annual income,gender,occupation and educational level of borrowing applicants,and collateral value. By the counter-factual analysis,we also find that raising loan-to-value ratios can ba a tool of increasing loan profit for banks,especially for borrowers who apply for low loan-to-value ratios.
Subjects
credit assessment
default risk
mortgage loans
logistic regression
Type
thesis