This paper empirically examines the functional role of various micro and macro economic as well as situational factors that determine residential housing demand and risk of borrower default. Using 13,487 housing loan account sanctioned from 1993-2007) data from Housing Finance Institutions (HFIs) in India, we investigate the crucial factors that drive demand for housing and its correlation with borrower characteristics. Next, we examine housing loan defaults and the major causative factors of the same. Our empirical results suggest that borrower defaults on housing loan payments is mainly driven by change in market value of the property vis-à-vis the loan amount and EMI to income ratio. A 10 percent decrease in the market value of the property vis-à-vis the loan amount raises the odds of default by 1.55 percent. Similarly, a 10 percent increase in EMI to income ratio raises the delinquency chance by 4.50 percent. However, one cannot ignore borrower characteristicslike marital status, employment situation, regional locations, city locations, age profile and house preference which otherwise may inhibit lender to properly assess credit risk in home loan business as our results show that these parameters also act as default triggers.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
14352.
Find related papers by JEL classification: G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
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