The Empirical Study Of The Influencing Factors Of Residential Mortgage Loan Default

Since the housing reforms in 1998, the residential mortgage market has become a financial engine for the booming residential housing consumption development and great economic growth in China. With the rapid increase of residential mortgages in our country, we witness a high growth in the termination risks in it. Ill loan ratio in our country is obviously higher than that in the developed countries or regions such as United States and Hong Kong. Default risk is being concerned more and more in both financial industry and the academic field, and so is the necessity and urgency of reinforcing the management of default risk. However, there still lacks of empirical studies in default risk of residential mortgages. Because of the background mentioned above, this dissertation focuses on the empirical analysis about the major determinants of default risk. This study will help banks build theoretic and technological foundation to control default risk at the entering of residential mortgages.Based on the literature review this study classifies the major determinants in four dimensions:borrower characteristics dimension, property characteristics dimension, loan characteristics dimension, and regional characteristics dimension. This empirical study uses actual mortgage loan data of a commercial bank in central China, from Jun 30,2006 to Jun 30,2010. This study conducts factor analysis and logistic regression, the empirical results indicate that: monthly repayment to income, interest rate, family income ect. are the determinants positively related with default; housing price index and education are the determinants negatively related with default.Then, this empirical study further subdivided mortgage loan into normal, default and delinquency. The results of cumulative odds multiple factor logistic regression performs well in forecasting. At the end of this dissertation, serveral constructive advice are raised for the management of default risk of commercial banks in China, such as establishing a personal credit rating system suitable for China's national conditions, achieving the goal of securitization of the commercial banks residential mortgage assets.