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Article
Publication date: 10 May 2011

Bruce L. Dixon, Bruce L. Ahrendsen, Brandon R. McFadden, Diana M. Danforth, Monica Foianini and Sandra J. Hamm

The purpose of this paper is to apply duration methods to a sample of Farm Service Agency (FSA) direct, seven‐year operating loans to identify those variables that…

Abstract

Purpose

The purpose of this paper is to apply duration methods to a sample of Farm Service Agency (FSA) direct, seven‐year operating loans to identify those variables that influence the time to loan termination and type of termination. Variables include both those known at time of loan origination and those that characterize the changing economic environment over the life of the loan. Also, to examine the impact of various FSA programs promoting policy objectives.

Design/methodology/approach

A systematic sample of 877 seven‐year, FSA direct loans originated between October 1, 1993 and September 30, 1996 was collected. Cox regression, competing risks models are estimated as a function of borrower and loan characteristics observable at loan origination. Economic indicator variables emphasizing the farm economy and observed quarterly over the life of the loan are also included as explanatory variables.

Findings

Loan characteristics, borrower financial characteristics and degree of borrower interaction with FSA observable at origin are significant variables in determining type of loan outcome (default or paid‐in‐full) and time to outcome. Changes in the economic environment and farm economy during the life of the loan are significant.

Research limitations/implications

The sample consists only of FSA direct loans which implies borrowers are at financial margin. Application of method to agricultural loans from conventional commercial lenders could identify different significant factors.

Practical implications

Using length of time to loan termination instead of just type of outcome provides for a richer analysis of loan performance. Loan performance over time is influenced by the larger economy and should be incorporated into loan performance modeling.

Originality/value

The study described in the paper demonstrates use of competing risks models on intermediate agricultural loans and develops how this technique can be used to learn about dynamic aspects of loan performance. Sample consists of observations on individual FSA direct loan borrowers. The FSA direct loan program is the major source of credit for agricultural borrowers at the financial margin.

Details

Agricultural Finance Review, vol. 71 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 2 May 2017

Evgeniy M. Ozhegov

This paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.

Abstract

Purpose

This paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.

Design/methodology/approach

Analysis takes into account the underwriting process and the choice of contract terms of all loans originated from 2008 to 2012. The data set contains demographic and financial characteristics for all applications, loan terms and the performance information for all issued loans by one regional bank which operates government mortgage programs. The paper uses a multistep semiparametric approach to estimate the determinants of bank and borrower choice controlling for possible heterogeneity of preferences, sample selection and endogeneity of contract terms.

Findings

The study found that the demand of low-income households who are unable to afford to improve the housing conditions by other instruments than government mortgage is less elastic according to the change both in interest rate and maturity compared with higher-income households.

Social implications

Given lower elasticities of the demand, the low-income group of borrowers has higher potential cost of loan and is usually rejected by commercial banks. The presence of the Agency of Housing Mortgage Lending special programs with subsidized interest rate for special constrained categories (young families, teachers, researchers etc.) widens the access for housing conditions’ improvements as a part of housing affordability government program.

Originality/value

The main contribution to the literature is modeling choice of contract terms as interdependent by the structural system of simultaneous equations with heterogeneous marginal effects.

Details

Journal of European Real Estate Research, vol. 10 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 29 April 2014

Charles Dodson

An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small…

Abstract

Purpose

An established paradigm in small business lending is segmented by bank size with large banks more likely to lend to large informationally transparent firms while small banks are more likely to lend to small informationally opaque firms. In light of banking consolidation, this market segmentation can have implications for credit availability. Federal loan guarantees, such as those provided by USDA's Farm Service Agency (FSA) may reduce the risks of lending to informationally opaque firms thereby mitigating the impacts of the bank size lending paradigm. This paper aims to discuss these issues.

Design/methodology/approach

This analysis utilized a binomial logit procedure to determine if there was any empirical evidence that smaller community banks served a unique clientele of farmers when making FSA-guaranteed loans. The analysis relied on a unique data set which incorporated detailed data on farm businesses receiving FSA-guaranteed loans, loan characteristics, as well as information about the originating bank and characteristics of the local credit markets.

Findings

Results were consistent with the bank size lending paradigm with smaller banks being less likely to engage in fixed-asset lending, and more likely to serve a riskier and less established clientele when making guaranteed loans.

Research limitations/implications

Data limitations did not permit detailed analysis of banks larger than $250 million in total assets nor for consideration of non-bank lenders. An expansion by these lender groups into serving more informationally opaque borrowers could mitigate any adverse impacts arising from fewer small community banks.

Practical implications

The results suggested that Federal guarantees do not completely eliminate the relative informational advantages of large and small size banks. And, continued bank consolidation, such that there are fewer small community banks, could result in less credit availability among smaller, less creditworthy farm businesses.

Social implications

While FSA guarantees may not enhance a large banks propensity to serve informationally opaque farm borrowers, they may enhance the ability of smaller community banks to serve groups specifically targeted through FSA lending programs; the provision of credit to family farmers who, despite being creditworthy, are unable to obtain credit at reasonable rates and terms.

Originality/value

The analysis examines relationship between bank size and the use of FSA guarantees using a unique data set which incorporated information on FSA-guaranteed loans, farm financial characteristics, along with characteristics of commercial banks which participated in the FSA-guarantee program.

Details

Agricultural Finance Review, vol. 74 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 8 March 2018

Frank Gyimah Sackey

The purpose of this paper is to examine if credit rationing persists even in the era of financial liberalization, the extent to which individual, firm and loan…

Abstract

Purpose

The purpose of this paper is to examine if credit rationing persists even in the era of financial liberalization, the extent to which individual, firm and loan characteristics influence the rationing behavior of commercial banks and whether the agricultural sector is discriminated against in the commercial bank credit market.

Design/methodology/approach

The study employed a probit model with marginal effects and a generalized Blinder-Oaxaca decomposition estimation on a randomly selected data of 1,239 entrepreneurs from eight commercial banks’ credit records about their individual, firm and loan characteristics.

Findings

The study revealed that credit rationing persists and that applying for a relatively longer payment period, providing collateral and guarantor, being illiterate, being relatively older and being in the agricultural sector increases the likelihood of being credit rationed, while having some relationship with the bank, having non-mandatory savings and applying from a bank with relatively high interest rates reduce the likelihood of being credit rationed. The study also revealed a credit gap of 17.77 percent and a positive discrimination against borrowers in the agricultural sector as the gap was largely being influenced by unexplained factors.

Research limitations/implications

The research was intended to cover a large number of commercial banks in Ghana. However, most of the banks were unwilling to provide such information about their borrowers; hence, the research was limited to only eight commercial banks who provided the author with the information needed for the study.

Practical implications

The study concludes that policies that enhance human capital, women, and older access to credit and agricultural-oriented financial services and others, will go a long way to reduce rationing and increase access to credit, especially to the agricultural sector.

Social implications

The research proposes the use of group lending as a form of collateral and monitoring to ease risks and default, and hence supports sustainable funding to increase access and outreach.

Originality/value

The paper looks at the comprehensive way about the various factors determining credit rationing in that it considers not only the individual, economic/firm and loan characteristics but also the extent to which discrimination toward the agricultural sector exists in the commercial banks credit market.

Details

Agricultural Finance Review, vol. 78 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

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Article
Publication date: 10 July 2020

Azira Abdul Adzis, Hock Eam Lim, Siew Goh Yeok and Asish Saha

This study investigates factors contributing to residential mortgage loans default by utilizing a unique dataset of borrowers' default data from one of the pioneer lending…

Abstract

Purpose

This study investigates factors contributing to residential mortgage loans default by utilizing a unique dataset of borrowers' default data from one of the pioneer lending institutions in Malaysia that provides home financing to the public. Studies on mortgage loan default have been extensively examined, but limited studies utilize the individual borrower's data, as financial institutions generally hesitant to reveal their customers' data due to confidentiality issue.

Design/methodology/approach

This study uses logistic regression model to analyze 47,158 housing loan borrowers' data for the year 2016.

Findings

The findings suggest that male borrowers, Malay and other type of ethnicity, guarantor availability, loan original balance, loan tenure, loan interest rate and loan-to-value (LTV) ratio are the significant factors that influence mortgage loans default in Malaysia.

Research limitations/implications

Future studies may expand the sample by employing data from other types of financial institutions that would give greater insights as findings might vary due to differences in objectives, functions and regulations. In addition, the findings are subjected to the censoring bias where future studies could perform the survival analysis to control for censoring bias and re-validating the findings of the present study.

Practical implications

The findings provide valuable insights for lending institutions and the government to formulate housing loan policy in Malaysia.

Originality/value

To the best of the authors' knowledge, this is the first study in the context of emerging economies that uses financial institution's internal data to investigate factors of mortgage loan default.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

Keywords

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Article
Publication date: 14 November 2016

Genanew Bekele, Reza H. Chowdhury and Ananth Rao

The purpose of this paper is to consider borrower-specific characteristics to understand the factors affecting both the probability and quantum of loan default by…

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Abstract

Purpose

The purpose of this paper is to consider borrower-specific characteristics to understand the factors affecting both the probability and quantum of loan default by individual borrowers under Islamic and conventional banking.

Design/methodology/approach

Borrower-specific characteristics that explain the probability of default may not necessarily be similar factors that determine the quantum of default. The authors therefore apply a Box-Cox double hurdle model to treat both the probability and quantum of default in a two-step approach. The authors also explain the differences in default risk and quantum of default between Islamic and conventional banking borrowers from their behavioral perspectives following the Sharia principles in financial transactions between lenders and borrowers. The authors use borrower-specific information of two separate bank branches of the United Arab Emirates that solely deal with either Islamic or conventional banking products.

Findings

The paper demonstrates that the probability of default and the quantum of default appear to be influenced by different set of client-specific factors. The results suggest that the probability of default does not vary significantly between Islamic and conventional banking borrowers. The evidence also shows that Islamic banking defaulters, compared to those in conventional banking, repay a large quantum of overdue when their financial leverage improves. However, they do not tend to reduce their outstanding quantum of overdue faster than conventional banking defaulters.

Research limitations/implications

Availability of data from only two bank branches may limit the explanatory power of empirical findings.

Practical implications

The study findings will enable the Islamic and conventional banks to appropriately address Basel Capital requirements based on the borrowers’ behavior.

Social implications

The study findings have the potential for Islamic and conventional financing institutions to be more flexible with equity in their lending practices.

Originality/value

Religious beliefs are crucial in borrower’s default behavior in Islamic banking.

Details

Review of Behavioral Finance, vol. 8 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

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Article
Publication date: 28 September 2012

Christopher Gan, Zhaohua Li, Weizhuo Wang and Betty Kao

This paper aims to investigate the determinants of default mortgage in China and the factors affecting the mortgage amount granted by Chinese banks.

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1217

Abstract

Purpose

This paper aims to investigate the determinants of default mortgage in China and the factors affecting the mortgage amount granted by Chinese banks.

Design/methodology/approach

This paper employs the credit scoring model to investigate the determinants of default mortgage in China and the factors affecting the mortgage amount granted by Chinese banks.

Findings

Using a proprietary dataset from branches of the Construction Bank of China containing information on all mortgages offered to borrowers from 2004 to 2009 1st quarter, the paper documents that borrower rating, mortgage rate and mortgage duration are significantly related to default rate and mortgage amount. These findings suggest that Chinese banks' mortgage lending are based on commercial basis. This helps to reduce the likelihood of a real estate bubble in China.

Research limitations/implications

The findings in this paper argued that a good credit scoring model has the ability to detect bad loans; this could help the bank to reduce the loan losses from loan default. Consequently, it can improve the profitability and the financial stability of the bank.

Originality/value

This research would benefit both lender and borrowers. Lenders can apply an objective evaluation technique with a standard process and criteria to appraise their customer's credit risks and creditworthiness. A good credit risk management tool can effectively control risk selection, manage credit losses, evaluate new loan programs, improve loan approval processing time, and ensure that existing credit criteria are sound and consistently applied.

Details

International Journal of Housing Markets and Analysis, vol. 5 no. 4
Type: Research Article
ISSN: 1753-8270

Keywords

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Book part
Publication date: 4 March 2008

Li Hao and Gordon S. Roberts

Prior research suggests that given the legal environment in the U.S., smaller syndicates with fewer lead banks should represent “best practices” to promote efficient…

Abstract

Prior research suggests that given the legal environment in the U.S., smaller syndicates with fewer lead banks should represent “best practices” to promote efficient monitoring and ease of renegotiation. Such syndicates should be associated with lower loan spreads. Controlling for other influences on loan pricing, we conduct tests of this proposition drawing on data from DealScan, Compustat and Federal Reserve Call Reports for U.S. loans between 1988 and 1999. Consistent with our hypothesis, the number of lead lenders is shown to have a significant positive influence on loan yield spreads.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-549-9

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Article
Publication date: 18 February 2021

Mohammad Tariqul Islam Khan and Yong Yee Xuan

Despite the emergence of peer-to-peer (P2P) lending in Malaysia, there is a knowledge gap on what drives the lending decision of P2P lending in the emerging Malaysian…

Abstract

Purpose

Despite the emergence of peer-to-peer (P2P) lending in Malaysia, there is a knowledge gap on what drives the lending decision of P2P lending in the emerging Malaysian market. This research investigates how borrower's loan tenure, funding purpose, verified documents, accumulated transaction and repayment history, age, trustworthy and geographical resemblance affect likelihood of lending decision in P2P platform.

Design/methodology/approach

Using snowball sampling, survey data was collected from 300 online banking users who were willing to invest in online P2P platform from different states in Malaysia (i.e. Selangor, Malacca, Johor and Negeri Sembilan). For estimation, regression analyses were estimated.

Findings

The findings suggest that borrower's loan tenure and borrower's age increase the probability of lending in online P2P platform, while funding purpose of credit card reduces the likelihood of lending in the P2P platform. The findings contribute to the signalling theory.

Practical implications

The findings imply that borrowers need to concentrate on loan tenure and clearly indicate their age in the listing in order to increase the funding probability. Moreover, they are suggested not to submit listing for credit card as funding purpose.

Originality/value

This study is first in its nature about P2P lending in Malaysia and the possible factors that influence lending decisions in this new financing platform.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

Keywords

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Article
Publication date: 2 March 2012

Xiaowei Li and Weida Kuang

There exists a large volume of literature evaluating the mortgage prepayment risk based on the USA's and other developed countries' experiences. With access to detailed…

Abstract

Purpose

There exists a large volume of literature evaluating the mortgage prepayment risk based on the USA's and other developed countries' experiences. With access to detailed loan‐level data provided by a national mortgage lender in China, the purpose of this paper is to revisit the empirical question of the determinants of mortgage prepayment probability.

Design/methodology/approach

The paper utilizes unique loan‐level data from a large national residential mortgage lender in China to provide insights into borrowers' prepayment behavior in China under recent market conditions, focusing on the customers' behavior and the segmentation analysis of the prepayment risk.

Findings

The results from a logit model indicate that housing appreciation rate and the stock market performance are important considerations for Chinese borrowers. It was also found that borrowers show the heterogeneous prepayment behavior in different groups. For instance, households who purchase new houses are less sensitive to the LTV ratio. These findings provide empirical support for the risk management in the rapid growing mortgage market in China as well as those in other transitional economies.

Research limitations/implications

Because of the lack of the literature in the immature mortgage markets, the research results may lack generalizability. Therefore, researchers are encouraged to test the proposed propositions further using their own datasets.

Practical implications

The paper includes implications for policy makers to further strategic decision making using a quantitative framework which has not been fully developed in most of the state‐owned banks in China.

Originality/value

This paper has contributed to the analysis of Chinese mortgage prepayment pattern using a large recent micro‐loan level data set. As mortgage borrowers' behavior can be country specific due to the differences in housing policies and housing market structure, this paper sheds new light on the driver factors determining mortgage prepayment in China's mortgage market.

Details

International Journal of Housing Markets and Analysis, vol. 5 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

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