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Typical States and Their Risks for Mortgage Loans
1Department of Accounting and Finance, College of Business, Texas A&M University-Commerce, Office #2078, 8750 North Central Expressway, Dallas, TX 75231 USA.
Journal of Quantitative Economics : Journal of the Indian Econometric Society
|June 15, 2023
Summary
This study introduces a mortgage loan model to assess risks like job loss and housing market downturns. It helps understand how these factors impact loan delinquency and borrower repayment capabilities.
Area of Science:
- Financial Mathematics
- Risk Management
- Econometrics
Background:
- Mortgage loans are susceptible to various risks affecting repayment.
- Job market volatility and housing market fluctuations pose significant threats.
- Understanding these risks is crucial for lenders and borrowers.
Purpose of the Study:
- To develop a compartmental model for mortgage loan risk assessment.
- To analyze the impact of systemic and idiosyncratic risks on loan delinquency.
- To investigate housing market collapse effects on borrower incentives.
Main Methods:
- Construction of a compartmental model tracking loan states and hazards.
- Inclusion of employment-related risks (systemic and idiosyncratic).
- Modeling of housing market collapse scenarios and their impact.
Main Results:
- The model quantifies delinquency risks from employment and housing market factors.
- Simulations demonstrate the model's functionality under various conditions.
- Sensitivity analyses provide insights into risk factor impacts.
Conclusions:
- The proposed model offers a framework for analyzing mortgage loan risks.
- It aids in understanding borrower behavior under financial stress.
- Potential extensions can further refine risk assessment and management.
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