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Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market

Year 2019, Volume: 27 Issue: 39, 39 - 54, 31.01.2019
https://doi.org/10.17233/sosyoekonomi.2019.01.02

Abstract

We analyze the determinants of default and prepayment in the Turkish mortgage market by utilizing data obtained from a large commercial bank. Our main findings suggest that default is positively affected by a high loan to value ratio and term length of mortgages, and negatively affected by certain quantitative easing periods, good expectations regarding the future, the ratio of real house prices to the size of the economy and mortgage customer’s high school and above level of education and being married. The probability of prepayment rises with the increase in variables such as the gain ratio due to prepayment, high school and above level of education of the mortgage customer, size of the GDP and the ratio of real house prices to GDP. We also find that the likelihoods of both the cases of default and prepayment are locally maximized when nearly 60% of the term is reached.

References

  • Ambrose, B. W., & Sanders, A. B. (2003). Commercial mortgage-backed securities: prepayment and default. The Journal of Real Estate Finance and Economics, 26(2), 179-196.
  • Bajari, P., Chu, C. S., & Park, M. (2008). An empirical model of subprime mortgage default from 2000 to 2007 (No. w14625). National Bureau of Economic Research.
  • Campbell, J. Y., & Cocco, J. F. (2012). A Model of Mortgage Defaultn. unpublished paper, Harvard University and London Business School.
  • Campbell, T. S., & Dietrich, J. K. (1983). The determinants of default on insured conventional residential mortgage loans. The Journal of Finance, 38(5), 1569-1581.
  • Chen, H., Michaux, M., & Roussanov, N. (2013). Houses as ATMs? Mortgage refinancing and macroeconomic uncertainty (No. w19421). National Bureau of Economic Research.
  • Deng, Y., Quigley, J. M., & Order, R. (2000). Mortgage terminations, heterogeneity and the exercise of mortgage options. Econometrica, 68(2), 275-307.
  • Doviak, E., & MacDonald, S. (2012). Who Defaults on their Home Mortgage?. New York Economic Review, 43(1), 75-98.
  • Elul, R., Souleles, N. S., Chomsisengphet, S., Glennon, D., & Hunt, R. (2010). What" Triggers" Mortgage Default?. American Economic Review, 100(2), 490-94.
  • Erol, I., & Patel, K. (2005). Default risk of wage-indexed payment mortgage in Turkey. Journal of Housing Economics, 14(3), 271-293.
  • Foote, C. L., Gerardi, K., & Willen, P. S. (2008). Negative equity and foreclosure: Theory and evidence. Journal of Urban Economics, 64(2), 234-245.
  • Ghent, A. C., & Kudlyak, M. (2011). Recourse and residential mortgage default: evidence from US states. The Review of Financial Studies, 24(9), 3139-3186.
  • Guiso, L., & Sodini, P. (2012). Household finance: An emerging field.
  • Haughwout, A., Okah, E., & Tracy, J. (2010). Second Chances. Federal Reserve Bank of New York Staff Reports, (417).
  • Kalotay, A., Yang, D., & Fabozzi, F. J. (2004). An option-theoretic prepayment model for mortgages and mortgage-backed securities. International Journal of Theoretical and Applied Finance, 7(08), 949-978.
  • Kang, P., & Zenios, S. A. (1992). Complete prepayment models for mortgage-backed securities. Management Science, 38(11), 1665-1685.
  • King, G., & Zeng, L. (2001). Logistic regression in rare events data. Political analysis, 9(2), 137-163.
  • LaCour-Little, M. (2008). Mortgage termination risk: a review of the recent literature. Journal of Real Estate Literature, 16(3), 295-326.
  • Mayer, C., Pence, K., & Sherlund, S. M. (2009). The rise in mortgage defaults. The Journal of Economic Perspectives, 23(1), 27-50.
  • Mian, A., & Sufi, A. (2009). The consequences of mortgage credit expansion: Evidence from the US mortgage default crisis. The Quarterly Journal of Economics, 124(4), 1449-1496.
  • Navratil, F. J. (1985). The estimation of mortgage prepayment rates. Journal of Financial Research, 8(2), 107-117.
  • Quigley, J. M., & Order, R. (1990). Efficiency in the mortgage market: The borrower's perspective. Real Estate Economics, 18(3), 237-252.
  • Schwartz, E. S., & Torous, W. N. (2003). Commercial Office Space: Tests of a Real Options Model with Competitive Interactions. Working Paper, University of California, Los Angeles.
  • Vandell, K. D. (1978). Default risk under alternative mortgage instruments. The Journal of Finance, 33(5), 1279-1296.
  • Wyman, O. (2010). Understanding strategic default in mortgages. Experian Report.
  • Xiao, J. J. (2015). Consumer Borrowing. In Consumer Economic Wellbeing (pp. 181-198). Springer New York.

Türkiye Mortgage Piyasasındaki Temerrütlerin ve Erken Ödemelerin Dinamik Analizi

Year 2019, Volume: 27 Issue: 39, 39 - 54, 31.01.2019
https://doi.org/10.17233/sosyoekonomi.2019.01.02

Abstract

Bu çalışmada, Türkiye mortgage piyasasındaki temerrüt ve erken ödemelerin belirleyicileri, ticari bir bankadan temin edilen veriler kullanılarak, analiz edilmektedir. Temel bulgularımız göstermektedir ki; borç-değer rasyosunun ve mortgage kredisi vadesinin yükselmesi temerrüt olasılığını arttırıcı etkide bulunmaktayken, bu olasılığı azaltıcı temel etkenler ise bazı parasal genişleme dönemleri, geleceğe dair iyi beklentiler, reel konut fiyatlarının ekonomik büyüklüğe oranı ve mortgage kredisi müşterisinin lise ve üstü eğitim seviyesine sahip ve evli olmasıdır. Erken ödeme olasılığı ise erken ödemeden kaynaklı kazanç oranı, mortgage müşterisinin lise ve üstü eğitim düzeyi, GSYH büyüklüğü ve reel konut fiyatlarının GSYH’ye oranı değişkenlerindeki artış ile yükselmektedir. Makalede ayrıca, vadenin yaklaşık %60’ına ulaşıldığında hem temerrüt hem de erken ödeme olasılıklarının en üst düzeye çıktığı bulunmuştur.

References

  • Ambrose, B. W., & Sanders, A. B. (2003). Commercial mortgage-backed securities: prepayment and default. The Journal of Real Estate Finance and Economics, 26(2), 179-196.
  • Bajari, P., Chu, C. S., & Park, M. (2008). An empirical model of subprime mortgage default from 2000 to 2007 (No. w14625). National Bureau of Economic Research.
  • Campbell, J. Y., & Cocco, J. F. (2012). A Model of Mortgage Defaultn. unpublished paper, Harvard University and London Business School.
  • Campbell, T. S., & Dietrich, J. K. (1983). The determinants of default on insured conventional residential mortgage loans. The Journal of Finance, 38(5), 1569-1581.
  • Chen, H., Michaux, M., & Roussanov, N. (2013). Houses as ATMs? Mortgage refinancing and macroeconomic uncertainty (No. w19421). National Bureau of Economic Research.
  • Deng, Y., Quigley, J. M., & Order, R. (2000). Mortgage terminations, heterogeneity and the exercise of mortgage options. Econometrica, 68(2), 275-307.
  • Doviak, E., & MacDonald, S. (2012). Who Defaults on their Home Mortgage?. New York Economic Review, 43(1), 75-98.
  • Elul, R., Souleles, N. S., Chomsisengphet, S., Glennon, D., & Hunt, R. (2010). What" Triggers" Mortgage Default?. American Economic Review, 100(2), 490-94.
  • Erol, I., & Patel, K. (2005). Default risk of wage-indexed payment mortgage in Turkey. Journal of Housing Economics, 14(3), 271-293.
  • Foote, C. L., Gerardi, K., & Willen, P. S. (2008). Negative equity and foreclosure: Theory and evidence. Journal of Urban Economics, 64(2), 234-245.
  • Ghent, A. C., & Kudlyak, M. (2011). Recourse and residential mortgage default: evidence from US states. The Review of Financial Studies, 24(9), 3139-3186.
  • Guiso, L., & Sodini, P. (2012). Household finance: An emerging field.
  • Haughwout, A., Okah, E., & Tracy, J. (2010). Second Chances. Federal Reserve Bank of New York Staff Reports, (417).
  • Kalotay, A., Yang, D., & Fabozzi, F. J. (2004). An option-theoretic prepayment model for mortgages and mortgage-backed securities. International Journal of Theoretical and Applied Finance, 7(08), 949-978.
  • Kang, P., & Zenios, S. A. (1992). Complete prepayment models for mortgage-backed securities. Management Science, 38(11), 1665-1685.
  • King, G., & Zeng, L. (2001). Logistic regression in rare events data. Political analysis, 9(2), 137-163.
  • LaCour-Little, M. (2008). Mortgage termination risk: a review of the recent literature. Journal of Real Estate Literature, 16(3), 295-326.
  • Mayer, C., Pence, K., & Sherlund, S. M. (2009). The rise in mortgage defaults. The Journal of Economic Perspectives, 23(1), 27-50.
  • Mian, A., & Sufi, A. (2009). The consequences of mortgage credit expansion: Evidence from the US mortgage default crisis. The Quarterly Journal of Economics, 124(4), 1449-1496.
  • Navratil, F. J. (1985). The estimation of mortgage prepayment rates. Journal of Financial Research, 8(2), 107-117.
  • Quigley, J. M., & Order, R. (1990). Efficiency in the mortgage market: The borrower's perspective. Real Estate Economics, 18(3), 237-252.
  • Schwartz, E. S., & Torous, W. N. (2003). Commercial Office Space: Tests of a Real Options Model with Competitive Interactions. Working Paper, University of California, Los Angeles.
  • Vandell, K. D. (1978). Default risk under alternative mortgage instruments. The Journal of Finance, 33(5), 1279-1296.
  • Wyman, O. (2010). Understanding strategic default in mortgages. Experian Report.
  • Xiao, J. J. (2015). Consumer Borrowing. In Consumer Economic Wellbeing (pp. 181-198). Springer New York.
There are 25 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Yusuf Varlı

Gökhan Övenç

Publication Date January 31, 2019
Submission Date November 3, 2017
Published in Issue Year 2019 Volume: 27 Issue: 39

Cite

APA Varlı, Y., & Övenç, G. (2019). Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market. Sosyoekonomi, 27(39), 39-54. https://doi.org/10.17233/sosyoekonomi.2019.01.02
AMA Varlı Y, Övenç G. Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market. Sosyoekonomi. January 2019;27(39):39-54. doi:10.17233/sosyoekonomi.2019.01.02
Chicago Varlı, Yusuf, and Gökhan Övenç. “Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market”. Sosyoekonomi 27, no. 39 (January 2019): 39-54. https://doi.org/10.17233/sosyoekonomi.2019.01.02.
EndNote Varlı Y, Övenç G (January 1, 2019) Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market. Sosyoekonomi 27 39 39–54.
IEEE Y. Varlı and G. Övenç, “Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market”, Sosyoekonomi, vol. 27, no. 39, pp. 39–54, 2019, doi: 10.17233/sosyoekonomi.2019.01.02.
ISNAD Varlı, Yusuf - Övenç, Gökhan. “Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market”. Sosyoekonomi 27/39 (January 2019), 39-54. https://doi.org/10.17233/sosyoekonomi.2019.01.02.
JAMA Varlı Y, Övenç G. Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market. Sosyoekonomi. 2019;27:39–54.
MLA Varlı, Yusuf and Gökhan Övenç. “Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market”. Sosyoekonomi, vol. 27, no. 39, 2019, pp. 39-54, doi:10.17233/sosyoekonomi.2019.01.02.
Vancouver Varlı Y, Övenç G. Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market. Sosyoekonomi. 2019;27(39):39-54.