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Model-based estimates of the resilience of mortgages at origination

Author

Listed:
  • Joyce, John

    (Central Bank of Ireland)

  • McCann, Fergal

    (Central Bank of Ireland)

Abstract

Using a probability of default model estimated over the period 2008-2015 for Irish mortgages, this Letter provides model-based estimates of the resilience of mortgages at origination. Cohorts of loans issued with lower aggregate probabilities of default based on their originating characteristics are deemed to have been more resilient at origination. We compare each annual cohort of loans issued from 2003 to 2016, differentiating between loans issued in 2015 that were within and outside the scope of Central Bank of Ireland mortgage market regulations. The results suggest that at-origination resilience was deteriorating in the Irish mortgage market from 2003 to 2008, before improving significantly in 2009 and 2010. The post-crisis period was characterised by increases in portfolio probability of default for the 2011 to 2014 cohorts, while the model suggests that resilience has improved relative to previous years for mortgages issued in 2015 and 2016.

Suggested Citation

  • Joyce, John & McCann, Fergal, 2016. "Model-based estimates of the resilience of mortgages at origination," Economic Letters 09/EL/16, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:09/el/16
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    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter-vol-2016-no-09.pdf?sfvrsn=10
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    References listed on IDEAS

    as
    1. Kelly, Robert & O’Malley, Terence, 2016. "The good, the bad and the impaired: A credit risk model of the Irish mortgage market," Journal of Financial Stability, Elsevier, vol. 22(C), pages 1-9.
    2. Gaffney, Edward & Kelly, Robert & McCann, Fergal, 2014. "A transitions-based framework for estimating expected credit losses," Research Technical Papers 16/RT/14, Central Bank of Ireland.
    3. Jackson, Christopher, 2011. "Multi-State Models for Panel Data: The msm Package for R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 38(i08).
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    Cited by:

    1. Gaffney, Edward & McCann, Fergal, 2018. "The cyclicality in SICR: mortgage modelling under IFRS 9," Research Technical Papers 16/RT/18, Central Bank of Ireland.
    2. McCann, Fergal & Ryan, Ellen, 2016. "Originating Loan to Value ratios and the resilience of mortgage portfolios," Economic Letters 10/EL/16, Central Bank of Ireland.
    3. Gaffney, Edward & McCann, Fergal, 2019. "The cyclicality in SICR: mortgage modelling under IFRS 9," ESRB Working Paper Series 92, European Systemic Risk Board.

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