An empirical analysis of home equity loan and line performance |
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| Authors: | Sumit Agarwal Brent W Ambrose Souphala Chomsisengphet Chunlin Liu |
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| Institution: | aBank of America, Mail Stop MD9-978-03-02, 1101 Wootten Parkway, Rockville, MD 20814, USA;bGatton College of Business and Economics, University of Kentucky, Lexington, KY 40506-0034, USA;cRisk Analysis Division, Office of the Comptroller of the Currency, 250 E Street, SW Washington, DC 20219, USA;dCollege of Business Administration, University of Nevada, Reno, NV 89557, USA |
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| Abstract: | Given the growth in home equity lending during the 1990s, it is imperative that lenders and regulators understand the risks associated with this segment of the residential mortgage market. Using a unique panel data set of over 135,000 homeowners with second mortgages, our analysis indicates that significant differences exist in the prepayment and default probabilities of home equity loans and lines, providing insights into bank minimum capital requirements. We find that households with equity loans are relatively more sensitive to changes in interest rates. By contrast, households with equity lines are more sensitive to appreciation in property value. |
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| Keywords: | Home equity loans and lines Prepayment Capital regulations |
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