Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM
- Chair: Benjamin Keys, University of Pennslyvania
How Is Financial Literacy Important in Mortgage Market? Different Evidence from Urban China
AbstractHousehold mortgages have significant implications for the financial well-being of individual households and for the whole economy. However, In China, the use of mortgages of household is very limited given high amount of informal borrowing or total saving in financing their home. This study puts efforts to understand this phenomenon from the role of financial literacy. Using household survey data, this study examines the effect of financial literacy on household mortgage decisions in housing purchases in urban China. Different from other countries, we find that more financially sophisticated households are of the early adopters of mortgages. We further find that more financially literate households are likely to have a higher mortgage demand in terms of loan-to-value ratio. These relationships are different from the findings in some western countries. This study highlights the importance of financial literacy in mortgage market development in China. It suggests that one mechanism to hasten the financial development of a country is to increase financial literacy among its citizens.
House Price Markups and Mortgage Defaults
AbstractThe transaction price of identical housing units can vary widely due to heterogeneity in buyer and seller preferences, appraisers, and search costs, generating "markups" above or below the average market price. These markups are mean reverting upon subsequent transactions, suggesting transitory factors play a role in same-unit dynamics. We show markups are an important driver of mortgage delinquencies, defaults, prepayments, and credit losses conditional on default. In general, our findings highlight several important aspects of mortgage risk management, including underwriting, insurance, and unit-level house value dynamics.
The Impact of Repossession Risk on Mortgage Default
Abstract"This paper studies the effect of removing repossession risk on a borrower's decision to default on their mortgage. I exploit quasi-experimental variation in home-repossession law generated by a legal ruling in Ireland, which retroactively removed repossession risk on properties mortgaged before a certain date. Using matched data, sampled locally around this cut-off date, and a difference-in-differences research design, I find that the removal of credible repossession risk led to an immediate increase in mortgage default of 0.5 percentage points a quarter. Consistent with economic models of mortgage default, I find that the effect is driven by borrowers with low and negative home equity, but also by those with lower incomes and higher interest rates."
- G1 - General Financial Markets
- D8 - Information, Knowledge, and Uncertainty