scholarly journals Housing Wealth or Collateral: How Home Value Shocks Drive Home Equity Extraction and Spending

2020 ◽  
Author(s):  
Henrik Yde Andersen ◽  
Søren Leth-Petersen
Keyword(s):  
Interest Rates ◽  
Mortgage Market ◽  
Housing Wealth ◽  
Home Equity ◽  
Fixed Rate ◽  
Mortgage Loans ◽  
Mortgage Debt ◽  
Individual Level ◽  
Home Value ◽  
Home Values

Abstract We examine whether unanticipated changes in home values drive spending and mortgage-based equity extraction. To do this, we use longitudinal survey data with subjective information about current and expected future home values to calculate unanticipated home value changes. We link this information at the individual level to high quality administrative records containing information about mortgage borrowing as well as savings in various financial instruments. We find that the marginal propensity to increase mortgage debt is 3%–5% of unanticipated home value gains. We find no adjustment to other components of the portfolio, and we find that mortgage extraction leads to an increase in spending. The effect is driven by young households with high loan-to-value ratios, which is consistent with the effect being driven by collateral constraints. Further, we find that the effect is driven by home owners who actively take out a new mortgage. The price effect is magnified among fixed rate mortgage (FRM) borrowers who have an incentive to refinance their loans to lock in a lower market rate. These results point to the importance of the mortgage market in transforming price increases into spending and suggest that monetary policy can play an important role in transforming housing wealth gains into spending by affecting interest rates on mortgage loans.

scholarly journals Evaluating Borrower's Net Yield in Long-Term Fixed Rate Mortgage Loans in Korea

2019 ◽  
Vol 4 (No. 1 Apr 2019) ◽  
pp. 1-16
Author(s):  
Seung Ryul Ma
Keyword(s):  
Interest Rates ◽  
Mortgage Market ◽  
Market Condition ◽  
Fixed Rate ◽  
Mortgage Loans ◽  
Main Hypothesis ◽  
Expected Gain ◽  
Mortgage Interest Rate ◽  
The Difference

The Korean government has tried to change the structure of residential mortgages in Korea from the short-term variable-rate non-amorting loans to the long-term fixed-rate amorting loans since the early 2000’s. This study examines he borrower’s net yield from that new type of loans, which is defined as the difference between the lender’s yield out of the borrower’s repayment and the borrower’s yield from the expected gain on the portion of housing equity funded by cosnumer. The main hypothesis tested is that the borrower’s net yield will be affected by the time of loan origination and the level of mortgage interest rate charged because the future fluctuations of housing values and that of market interest rates are expected to be key determinants. The results confirm the hypothesis in that borrower’s net yields show positive or negative values according to the time of loan start, the level of fixed loan rates, or home regions. The results documented can offer a useful information as to the financial consumers’decision on loan amount and the timing of loan application considering the housing and mortgage market condition, which in turn can provide policy implication to regulating the maximum loan-to-value (LTV) ratio regulations.

scholarly journals The Covid-19 Effect on Security Mortgage Valuation

2021 ◽  
Vol 25 (1) ◽  
pp. 13-26
Author(s):  
Giovanna Di Lorenzo ◽  
◽  
Massimiliano Politano ◽  
Keyword(s):  
Interest Rates ◽  
House Prices ◽  
Gompertz Model ◽  
Mortgage Market ◽  
Elderly Persons ◽  
Home Equity ◽  
Reverse Mortgage ◽  
Mortgage Loans ◽  
Alternative Source ◽  
Cir Process

The reverse mortgage market has been expanding rapidly in developed economies in recent years. Reverse mortgages provide an alternative source of funding for retirement income and health care costs. We often hear the phrase “house rich and cash poor” to refer the increasing number of elderly persons who hold a substantial proportion of their assets in home equity. Reverse mortgage contracts involve a range of risks from the insurer’s perspective. When the outstanding balance exceeds the housing value before the loan is settled, the insurer suffers an exposure to crossover risk induced by three risk factors: interest rates, house prices, and mortality rates. In this context, Covid-19 has occurred and the insurer is faced with this additional source of risk. We analyse the combined impact of these risks on the pricing and the risk profile of reverse mortgage loans. We consider a CIR process for the evolution of the interest rate, a Black & Scholes model for the dynamics of house prices and the Gompertz model for the trend in mortality Our results show that the decrease in the mortality curve due to Covid exposes the insurer to higher risks once the shock is reabsorbed. The risk is higher the higher the age of entry. Only a significant reduction of the shock adjustment coefficient will return the situation to normality.

scholarly journals The Interest Rate Elasticity of Mortgage Demand: Evidence from Bunching at the Conforming Loan Limit

2017 ◽  
Vol 9 (1) ◽  
pp. 210-240 ◽  
Author(s):  
Anthony A. DeFusco ◽  
Andrew Paciorek
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Fixed Rate ◽  
Mortgage Debt ◽  
Percentage Point Increase ◽  
Fannie Mae ◽  
The Interest Rate ◽  
Loan Size ◽  
Loan Limit ◽  
Mortgage Demand

This paper provides novel estimates of the interest rate elasticity of mortgage demand by measuring the degree of bunching in response to a discrete jump in interest rates at the conforming loan limit—the maximum loan size eligible for purchase by Fannie Mae and Freddie Mac. The estimates indicate that a 1 percentage point increase in the rate on a 30-year fixed-rate mortgage reduces first mortgage demand by between 2 and 3 percent. One-third of this response is driven by borrowers who take out second mortgages, which implies that total mortgage debt only declines by 1.5 to 2 percent. (JEL D14, G21, R21, R31)

Forecast and Development Prospects of the Russian Mortgage Market

2021 ◽  
Vol 9 (4) ◽  
pp. 57-66
Author(s):  
D. Stepanova ◽  
D. Mironova
Keyword(s):  
Factor Analysis ◽  
Interest Rates ◽  
Market Analysis ◽  
Mortgage Market ◽  
Mortgage Loans ◽  
Current State ◽  
Federal Districts ◽  
Further Development ◽  
Development Prospects ◽  
Credit Institutions

The study discusses the current state of the mortgage market in Russia, identifies its main trends and trends of further development based on the results of market analysis for 2018-2020. The dynamics of the volume of issued housing mortgage loans in Russia as a whole and in the context of federal districts, the dynamics of interest rates for various types of mortgages are presented, the trend of reduction of credit institutions providing mortgage loans is analyzed, and the rating of Russian banks in terms of the volume of mortgage loans is presented. A factor analysis of the volume dynamics of housing mortgage loans is carried out, and the preconditions for the growth of the Russian mortgage market are identified.

Mortgage Foreclosures and Older Americans

2020 ◽  
pp. 106-115
Author(s):  
Lori A. Trawinski
Keyword(s):  
Financial Crisis ◽  
Mortgage Market ◽  
Economic Conditions ◽  
Mortgage Loans ◽  
Older Americans ◽  
Mortgage Debt ◽  
Home Prices ◽  
The Past ◽  
Mortgage Foreclosures ◽  
Over Time

Economic conditions improved since the 2008–09 mortgage market crisis, and home prices recovered in many areas. Nevertheless, over time, growing numbers of older households have taken on greater mortgage debt than in the past. These families are also carrying mortgage loans into retirement, far more than they did in the past. Foreclosure rates for all loans have decreased to pre-recession levels for borrowers under age 50, while for borrowers age 50+, foreclosure rates in 2017 were higher than in 2007. This means that many older homeowners may face the loss of their homes, despite the fact that the economy improved after the financial crisis.

Housing Wealth and Consumption: Evidence from Geographically Linked Microdata

2017 ◽  
Vol 107 (11) ◽  
pp. 3415-3446 ◽  
Author(s):  
Aditya Aladangady
Keyword(s):  
Causal Effect ◽  
House Price ◽  
Housing Markets ◽  
Borrowing Constraints ◽  
Housing Wealth ◽  
Home Equity ◽  
Regional Heterogeneity ◽  
Primary Driver ◽  
The Cost ◽  
Home Values

Rising home values also raise the cost of living, offsetting their impact on consumption. However, additional home equity collateral can loosen borrowing constraints, increasing spending for households that value their current endowment of housing highly. I use geographically linked microdata to exploit regional heterogeneity in housing markets and identify the causal effect of house price fluctuations on consumer spending. A $1 increase in home values leads to a $0.047 increase in spending for homeowners, but a negligible response for renters. Results reflect large responses among credit constrained households, suggesting looser borrowing constraints are a primary driver of the MPC out of housing wealth. (JEL D12, D14, E21, R31)

scholarly journals THE NATURE OF MORTGAGE REPAYMENT PLANS IN GHANA

2020 ◽  
Vol 2 (3) ◽  
pp. 91-104
Author(s):  
Justice Agyei Ampofo
Keyword(s):  
Interest Rates ◽  
House Prices ◽  
Supply And Demand ◽  
Mortgage Lending ◽  
Housing Finance ◽  
Fixed Rate ◽  
Mortgage Loans ◽  
Middle Income ◽  
Exchange Rate Fluctuations ◽  
Lending Institutions

Mortgage finance is one source of capital that cannot be ruled out when it comes to housing finance. It has globally aided many countries in terms of housing finance. A country’s housing finance system can work effectively if there is/are mortgage repayment plan(s) that would ensure flexibility in repayment of mortgage loans and encourage supply and demand for mortgage products. The study sought to find out the types and nature of mortgage repayment plans in Ghana. All the financial institutions which were into mortgage banking constituted the sample. The result shows that fixed rate method is the commonest method used in Ghana and other repayment plans have evolved from the fixed rate repayment plan. Exchange rate fluctuations, high interest rates and high house prices result in higher initial monthly mortgage repayment using the fixed rate repayment plan. It is recommended that mortgage lending institutions should reduce their interest rate for low middle income earners in Ghana to qualify for mortgage.

scholarly journals Mortgage volume and macroeconomic factors: Evidence from Turkey

2021 ◽  
Vol 9 (4) ◽  
pp. 1504-1520
Author(s):  
Tuğba Güneş ◽  
Ayşen Apaydın
Keyword(s):  
Interest Rates ◽  
House Prices ◽  
Mortgage Market ◽  
Mortgage Loan ◽  
Response Analysis ◽  
Mortgage Loans ◽  
Macroeconomic Factors ◽  
Mortgage Interest ◽  
Mortgage Interest Rates ◽  
Turkish Lira

This paper investigates the impacts of several macroeconomic variables on Turkey's volume of mortgage loans. Johansen cointegration test, vector error correction model, Granger causality tests, variance decomposition, and impulse-response analysis is employed for the econometric analysis to show short and long-run relationships between the variables using time series monthly data from January 2010 to March 2020. Paper results demonstrate that growth of housing credit size negatively correlates with mortgage interest rates, US Dollar/Turkish Lira exchange rate and level of real estate supply. At the same time, there is a positive correlation with house prices. Causal relationships between mortgage volume and macroeconomic indicators are bidirectional for all variables, except for mortgage interest rates. There is a one-way causality relationship from mortgage rates to mortgage loan volume. Econometric analyses show that the recent steep depreciation in the Turkish Lira hurts the Turkish mortgage market. In conclusion, a stable economic environment is essential to build a robust mortgage market.

scholarly journals DETERMINANTS OF MORTGAGE LOAN REPAYMENT IN GHANA

2021 ◽  
Vol 3 (4) ◽  
pp. 75-89
Author(s):  
Justice Agyei Ampofo ◽  
Isaac Mantey
Keyword(s):  
Interest Rates ◽  
Low Income ◽  
Occupational Status ◽  
Mortgage Market ◽  
Mortgage Loan ◽  
Primary Data ◽  
Mortgage Loans ◽  
Loan Repayment ◽  
Mortgage Industry ◽  
The Government

The housing deficit in Ghana is an issue of concern for all. This study sought to analyse the determinants of the repayment of mortgage loans in Ghana. The study used both secondary and primary data. The mixed-method approach was used for the study. The data collection instruments were interviews, focus group discussions and questionnaires. The study revealed that socio-demographic characteristics of respondents, sex distribution of respondents, educational level of respondents, marital status of respondents, occupational status of respondents, household size of respondents, the income of respondents are some of the factors that affect the repayment of mortgage loans in Ghana. The study revealed that borrowers who earned higher income had a better repayment performance as compared to low income earning borrowers. In addition, higher household sizes have lower repayment capacity and lower household sizes have higher repayment capacity. The study recommends that the government of Ghana should institute state bodies responsible for providing liquidity to mortgages and mortgage properties and buying mortgages during periods of rising interest rates is a way of creating a secondary mortgage market for the Ghanaian mortgage industry. Keywords:  Determinants, Mortgage, Repayment, Ghana.

A DESCRIPTIVE EXAMINATION OF THE IMPACT OF CANADIAN MORTGAGE STRESS TEST IN LENDING, BORROWING AND AFFORDABILITY

2021 ◽  
Vol 5 (9) ◽  
Author(s):  
Tariq Sardar ◽  
Tariq Sardar
Keyword(s):  
Interest Rates ◽  
Stress Test ◽  
Home Equity ◽  
Mortgage Debt ◽  
Residential Properties ◽  
History Of ◽  
Research Findings ◽  
The Government ◽  
Loan Approval ◽  
The Impact

A number of Canadians need to borrow money from lenders to purchase residential properties through mortgage route. The history of existing mortgage system in Canada is more than 100 years old. Canada Mortgage and Housing Corporation (CMHC) was created in 1946 to regulate the industry. There were 4.3 million homes under mortgage debt until 2017 and 0.5 million homes had Home Equity Line of Credit. In 2018, the Banking Regulatory Authority Canada imposed a New Stress Test on mortgage borrowers and changed the criteria of loan approval. Previously, the lenders do not need to test the affordability of those borrowers who put a down payment of 20% or above but now the lenders must need to test the borrowing power of all applicants under higher interest rates imposed by the government rather than the actual rate of interest being offered by lenders to borrowers. The descriptive study examined the influence of stress test in lending process, borrowing capacity of home buyers and loan affordability to pay off the debt under agreed terms. The study explains the current situation of delinquency and possible default after analyzing 370 samples collected from the city of Brampton. The research findings also highlighted the testing criteria, payment frequencies and actual amount to pay off the debt after purchasing.

Sign in / Sign up

Export Citation Format

Share Document