Study Of Mortgage Prepayment And Risk Management

From the end of the twentieth century, with changing in housingpolicy in China, the personal housing mortgage loans have been rapidlydeveloped. Commercial banks regard this business as a main measure toadjust their assets structure. In the end of1997,individual housingmortgage loan was19billion and to the end of2002, the loan was800billion,increased by more than20times just only five years. The latestfigures show the business has raised1052billion only single year in2012,according to the national bureau of statistics.However in the periodof the contract of mortgage,the rational borrowers will chooseprepayment to save the interest when the rate of interest changed.Theborrowers can benefit from prepayment but the prepayment increases therisk to the commercial banks.On the one hand, the action decreases theinterest income of banks, on the other hand, as the behavior ofprepayment is un-expectable, the management of the flow of cash isgetting more and more difficult to the commercial banks.Therefore, it isan urgent problem that to study the prepayment and manage theprepayment risk for commercial banks.This paper has four main components. The first part is introduction of the domestic and international mainstream research on personal housingmortgage loans. The second part is analysis the cash flow of theborrowers and the interest loss of commercial banks about two kinds ofmortgage payment under the fixed interest rate. The third part is toestablish the classified and predicted model which using the supportvector machines(SVM) classification and prediction, then help thecommercial banks to distinguish the borrowers who will prepay the loanand to complete the prevention measures as response to the borrower’sdefault behavior. Finally, in order to better manage the mortgage risk,summed experience of the mortgage risk management under the domesticand foreign mature financial system.