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A model of mortgage losses and its applications for macroprudential instruments

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  • Hott, Christian

Abstract

We develop a theoretical model of mortgage loss rates that evaluates their main underlying risk factors. Following the model, loss rates are positively influenced by the house price level, the loan-to-value of mortgages, interest rates, and the unemployment rate. They are negatively influenced by the growth of house prices and the income level. The calibration of the model for the US and Switzerland demonstrates that it is able to describe the overall development of actual mortgage loss rates. In addition, we show potential applications of the model for different macroprudential instruments: stress tests, countercyclical buffer, and setting risk weights for mortgages with different loan-to-value and loan-to-income ratios.

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  • Hott, Christian, 2013. "A model of mortgage losses and its applications for macroprudential instruments," Discussion Papers 34/2013, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:342013
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    13. Hott, C., 2011. "Lending behavior and real estate prices," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2429-2442, September.
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    Cited by:

    1. Siemsen, Thomas & Vilsmeier, Johannes, 2017. "A stress test framework for the German residential mortgage market: Methodology and application," Discussion Papers 37/2017, Deutsche Bundesbank.
    2. Nataliya Barasinska & Philipp Haenle & Anne Koban & Alexander Schmidt, 2023. "No Reason to Worry About German Mortgages? An Analysis of Macroeconomic and Individual Drivers of Credit Risk," Journal of Financial Services Research, Springer;Western Finance Association, vol. 64(3), pages 369-399, December.
    3. Barasinska, Nataliya & Haenle, Philipp & Koban, Anne & Schmidt, Alexander, 2019. "Stress testing the German mortgage market," Discussion Papers 17/2019, Deutsche Bundesbank.
    4. Calani, Mauricio & Paillacar, Manuel, 2022. "The pass-through of loan-loss-provisioning on mortgage lending: Evidence from a regulatory change," Journal of Banking & Finance, Elsevier, vol. 135(C).
    5. Bocchio, Cecilia & Crook, Jonathan & Andreeva, Galina, 2023. "The impact of macroeconomic scenarios on recurrent delinquency: A stress testing framework of multi-state models for mortgages," International Journal of Forecasting, Elsevier, vol. 39(4), pages 1655-1677.
    6. Christian Hott, 2022. "Leverage and Risk Taking under Moral Hazard," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(2), pages 167-185, April.
    7. Falter, Alexander, 2019. "Macro to the rescue? An analysis of macroprudential instruments to regulate housing credit," Discussion Papers 25/2019, Deutsche Bundesbank.
    8. Jose Torres-Pruñonosa & Pablo García-Estévez & Josep Maria Raya & Camilo Prado-Román, 2022. "How on Earth Did Spanish Banking Sell the Housing Stock?," SAGE Open, , vol. 12(1), pages 21582440221, March.

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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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