Residential Mortgage Lending and Borrower Risk: The Relationship Between Mortgage Spreads and Individual Characteristics |
| |
Authors: | Chiang Raymond C Chow Ying-Foon Liu Ming |
| |
Institution: | (1) Department of Accountancy, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;(2) Department of Finance, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong |
| |
Abstract: | The mortgage banking environment in Hong Kong is quite different from that in the United States. For example, the secondary mortgage market and mortgage insurance only started after 1997. Using a large data set on mortgages, we examine empirically how mortgage rates in this market vary with various individual borrower, property, and loan characteristics. We find that mortgage rates in Hong Kong do vary with individual characteristics, which suggests credit sorting according to both prepayment risk and default risk, as a higher mortgage rate is found to be related to either higher collateral (a lower loan-to-value ratio) or slower prepayment. The empirical results suggest that lenders in Hong Kong can observe the risk type of individual borrowers to a certain extent and charge a corresponding mortgage spread. Overall, the evidence is consistent with the sorting-by-observed-risk paradigm as in Berger and Udell (1990). |
| |
Keywords: | credit sorting individual characteristics mortgage spread |
本文献已被 SpringerLink 等数据库收录! |
|