AbstractMortgage insurance indemnifies a mortage lender against loss on default by the borrower. The sequence of events leading to a claim under this type of insurance is relatively complex, depending not only on the credit worthiness of the borrower but also on a number of external economic factors.Prominent among these external factors are the loan to valuation ratio of the insured loan, the disposable income of the borrower, and movements in property values. A broad theoretical model of the functional dependencies of claim frequency and average claim size on these variables is established in Sections 6 and 7. Section 8 fits these models, extended by other “internal” variables such as the geographic location of the mortgaged property, to a real data set.Section 9 compares the fitted model with the data, and finds an acceptable fit despite extreme fluctuations in the claims experience recorded in the data set.
Loan to Value Caps and Government-Backed Mortgage Insurance: Loan-Level Evidence From Dutch Residential Mortgages