Research On Housing Mortgage Pricing Of China

Over the past decade is the golden period of China’s economic development,behind the growth of GDP was benefited from the contribution of the real estate market.When China’s real estate market and the mortgage market developed prosperous,the U.S. subprime market has long been perilous. The financial crisis of2008not only caused a huge impact of the world economy,but also caused the social pay more attention to the mortgage-backed bonds.The crisis was the result of the U.S. Federal interest rates rise and real estate prices down.lt makes a lot of housing mortgage subprime loans default,and caused a large number of institutional investors bankrupt.By the end of the1990s, housing industry had been as a pillar industry of national economy, commercial residential buildings were built continuously. However, over the past decade China’s housing price grew6.7percent.The growth rate reach a historical peak in2007.The irrational growth of price was able to bring the hidden danger.Face the high price, people have to buy a house by loan.The proportion of individual housing credit business for banks expanded year and year.The proportion of individual housing consumer credit in the country’s total consumer credit has more than80%.The occurrence of the U.S. subprime mortgage crisis warned us,those risk-free assets also had the potential risks. Housing mortgage loans have stable cash flow,but the liquidity is very poor.In order to reduce risk and rise liquidity, China has carried out the experimental work of the housing mortgage loans securitization in recent years.CCB as the behaviour of the commercial banks,has issued twice housing mortgage loans securitization for secondary market transactions.Now too much individual credit loans concentrated in the housing industry,once house price slump will inevitably bring mortgage asset values decrease. Meanwhile it will produce a huge risk of bank credit, and then spread to the entire financial market too.So we should consider the potential risk factors and price a hosing mortgage loans reasonably.In this way,lending institutions can not only can reduce the likelihood of loss,but also can contribute to issue the mortgage-backed securities in future.In this paper,we main research the pricing of housing mortgage.Through checking literature,we found that most of studies still stay in qualitative analysis. Some scholars found that the value of personal housing mortgage loans is affected by several factors.Such as default risk,prepayment risk,the proportion of down payment, the term of mortgage, the rate of loan, personal income and property value factors and so on.However,there is little scholars engaged in quantitative research.There are four pricing methods about the housing mortgage. Include cash flow present value method, the credit rating method, the structured method and the simplicity method.Comprehensive analysis the advantages and disadvantages of those pricing methods,this article uses a simple method to improve the structured method.We can call it strength pricing method.The strength pricing method select three main variables:housing prices, default and risk-free discount rate.By the three variables we can establish a pricing model.This article uses the Monte Carlo simulation method.The setting of three variable improve the run time and the efficiency of the Monte Carlo simulation.All the simulation through the software of matlab.In the part of empirical analysis,I simulation a loan’s value,which by the fixed interest rate of7.3%and the term of10-year and the repayment method of same principal and interest.The model’s performance is relatively stable.It comply with the idea that I had. It can meet the requirements about the loan management of China commercial banks.The article also conducted a sensitivity analysis about the variable parameters. Housing mortgage value have positively correlated with lending rates. Mortgage value is relate with the term of loan.The trend of mortgage real estate price and loan’s outstanding balance combined effect the value of home mortgages.In my opinion,loan pricing is critical to the commercial banks and other mortgage institutions.There are need more scholars to research in-depth in future.