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1 – 10 of over 8000This study investigates the relation of bank loan delinquencies to Fed Survey delinquency data from 2003 to 2017. Bank-generated loans have lower delinquencies than all Fed Survey…
Abstract
Purpose
This study investigates the relation of bank loan delinquencies to Fed Survey delinquency data from 2003 to 2017. Bank-generated loans have lower delinquencies than all Fed Survey loan types. Survey mortgage and auto loan delinquencies are positively related to bank loan delinquencies indicating complimentary delinquency decisions for borrowers. Conversely, student loans delinquencies are negatively related to bank loans, consistent with borrowers substituting student loan payments for bank debt for the entire sample period. Student loan delinquencies are negatively related to per-capita bankruptcy, and all other types of debt have a positive relation. The relation between Fed Survey loan delinquencies and bank-generated loan delinquencies is time varying and changed after the financial crisis in 2008.
Design/methodology/approach
Seemingly Unrelated Regression is used to study delinquencies for three bank loan types and whether or not they are related to Fed Survey loan delinquencies. The sample is split into pre-financial crisis before 2008 and post-crisis after 2008.
Findings
Seemingly Unrelated Regression (SUR) results show that bank delinquencies for second mortgages and “Other” loan types are consistently complementary to Fed Survey mortgage loan delinquencies. Fed Survey auto loans delinquencies are also consistent with a complimentary relation, and these results are largely driven by the relation after the financial crisis of 2008 since pre-crisis regression results are not significant for every dependent variable. Credit card loan delinquencies have a negative and substitute relation with bank-generated first mortgage loan delinquencies prior to the crisis in 2008, and with bank-generated second mortgages after the crisis. Conversely, student loan delinquencies from the Fed Survey are negatively and significantly related to bank mortgages for the entire sample period, but only with bank-generated first mortgages after 2008. The student loan delinquency results are consistent with income smoothing, on average, although this is not explicitly tested at the micro level since this study uses macro-level data and not borrower-specific data. These findings are also consistent with conventional wisdom that student loans provide “financial slack” and borrower flexibility.
Research limitations/implications
A limiting factor is this study uses macro-level data and not borrower-specific data.
Practical implications
Empirical findings are consistent with prior research that student loans provide income smoothing and “financial slack,” and borrowers with payment challenges will pay other debt before student loans.
Social implications
Borrowers in financial trouble tend to be delinquent for all debt, and more so for student debt.
Originality/value
To investigate whether Fed Survey delinquencies of auto loans, first mortgages, student loans and credit card loans from all sources have complementary or substitution effects with bank debt at a macro level. The study investigates whether bank debt follows “market trends” as a complementary effect, or if bank debt has a negative relation to other debt indicating a substitution effect.
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The purpose of this paper is to investigate linkages between households’ expectations and credit markets in the housing crisis.
Abstract
Purpose
The purpose of this paper is to investigate linkages between households’ expectations and credit markets in the housing crisis.
Design/methodology/approach
In the Markov-switching framework, the sample period is classified into high- and low-impact regimes based on impacts of expectations on default rates, and the good-time-to-buy (GTTB) index is chosen to proxy for expectations toward the housing-market dynamics.
Findings
The results suggest that in high-impact regimes, optimistic expectations are substantially associated with lower defaults for all default rates analyzed, and second mortgage defaults are more sensitive to households’ expectations than first mortgage defaults. In low-impact regimes, the GTTB index significantly influences composite and first-mortgage default rates, but its impact is insignificant for second mortgage and bankcard default rates.
Originality/value
The results provide compelling evidence that households’ expectations play more important roles in credit markets in turmoil periods.
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Hanudin Amin, Abdul-Rahim Abdul-Rahman and Dzuljastri Abdul Razak
The purpose of this study is to propose a theory of Islamic consumer behaviour to explain the factors that influence the Islamic mortgage industry. Although previous works have…
Abstract
Purpose
The purpose of this study is to propose a theory of Islamic consumer behaviour to explain the factors that influence the Islamic mortgage industry. Although previous works have shown that conventional marketing theories were, to a certain extent, able to predict factors influencing halal marketing and Islamic mortgage, these theories fail to capture or accommodate the Islamic perspectives of consumer behaviour. Conventional marketing theories have also been found to be inadequate to explain the Islamic mortgage preference among consumers.
Design/methodology/approach
Drawing upon the Maqasid al-Shariah, this study develops an Maqasid al-Shariah index (MSI) and religious satisfaction (RS) for Islamic mortgage industry in Malaysia. These indexes are developed as the basis of the theory development in this setting. The model developed is later examined using survey data.
Findings
This study reveals that education and RS are instrumental in determining the Islamic home financing preference. In contrast, justice and welfare are insignificantly related to the Islamic home financing preference. Religious satisfaction, to a certain extent, plays role not only as a mediator but also as a moderator. We find that RS has a full mediation effect on the relationship between welfare and willingness to consider applying Islamic mortgage. We discover justice is moderated by RS. Education and welfare however are not moderated.
Originality/value
This study contributes to the development of an empirical Islamic framework in predicting consumers’ behaviour in an Islamic mortgage market using a Maqasid approach. This study is also pioneering in introducing two indexes, notably MSI and RS, and applying these indexes to Islamic home financing context.
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Srinivasa Reddy N and Jayanthi Thanigan
The purpose of this paper is to examine the antecedents of customer satisfaction during mortgage purchases. Mortgage demand in the USA has reached an all-time high because of an…
Abstract
Purpose
The purpose of this paper is to examine the antecedents of customer satisfaction during mortgage purchases. Mortgage demand in the USA has reached an all-time high because of an increase in housing demand after COVID-19. Nonetheless, several customers are dissatisfied with their service providers. Customers who actively search the market gain more information about mortgage providers and use this information to define expectations for lenders. The only way there will be customer satisfaction is if lenders meet these expectations. Therefore, it is economically significant for mortgage lenders to discover the antecedents of mortgage satisfaction.
Design/methodology/approach
In this study, the partial least squares approach was used to test the hypothesis that satisfaction was influenced by objective knowledge, familiarity and search intensity among a sample of customers (n = 4,512) from the National Survey of Mortgage Originations who had purchased a mortgage in the USA between 2019 and 2020.
Findings
The results of structural modelling showed that familiarity (β = 0.23 and p = 0.01) with and knowledge (β = 0.16 and p = 0.01) of mortgages significantly affected consumer satisfaction during mortgage purchase. Search intensity (p = 0.01) mediated the relationship between knowledge, familiarity and satisfaction.
Research limitations/implications
The primary implication is that mortgage service providers should prioritise educating customers about the mortgage buying process on their websites and in person. So managers must actively assist clients in having realistic expectations. Second, mortgage companies should establish a presence on third-party mortgage comparison websites to ensure that customers actively consider alternatives, thereby increasing customer satisfaction.
Originality/value
This study is unique in being an exploratory study to examine the antecedents of mortgage satisfaction using a public data set. This study uniquely examines the National Survey of Mortgage Originations data set with partial least squares approach to examine underlying customer attitudes.
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Lewis D. Johnson and Edwin H. Neave
The purpose of this paper is to examine the recent subprime mortgage market meltdown from a theoretical and practical perspective.
Abstract
Purpose
The purpose of this paper is to examine the recent subprime mortgage market meltdown from a theoretical and practical perspective.
Design/methodology/approach
The authors apply the principles of transaction costs economics to critically evaluate the roles of lenders, borrowers, institutions, and investors.
Findings
It is found that a combination of need, greed, perverse incentives, inadequate risk controls, lax regulation, and lax oversight caused a bubble in the subprime mortgage market which has inevitably burst. The principles of transaction cost economics provide a template for analysis and corrective action.
Research limitations/implications
The subprime mortgage market provides a useful example of where theory can provide helpful insights. The example has implications for future research in other financial market settings.
Practical implications
The results provide insight and guidance to lenders, borrowers, institutions, investors, regulators, and central bankers in how to identify and handle potentially toxic financial scenarios.
Originality/value
The theoretical perspective has not been applied to the subprime market or other similar financial settings. It offers both academic and practical contributions.
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Marsha J. Courchane and Judith A. Giles
As financial markets move toward increased globalization, it becomes worth considering whether inherent differences in financial markets across different countries will diminish…
Abstract
As financial markets move toward increased globalization, it becomes worth considering whether inherent differences in financial markets across different countries will diminish. For two countries more similar than different in terms of geography, location, government and culture, Canada and the USA remain strikingly different in terms of housing finance. Public policy objectives toward housing followed quite different paths over the past 70 years and fundamental differences in banking practices have led to considerably different outcomes in terms of mortgage finance instruments in the two countries. Examines some of the differences in policy and in competitive practices between Canada and the USA in an attempt to illuminate why differences in rates and terms across the two countries still exist. While a part of the difference remains due to legal constraints concerning the finance of the domestic housing sector, focuses on the economics and public policy choices that have led to the observed differences rather than on an analysis of the legal structure.
A subprime loan to straw borrower Charlotte Delaney was used to fraudulently strip equity from an elderly African American couple in Chicago. Following this loan from origination…
Abstract
A subprime loan to straw borrower Charlotte Delaney was used to fraudulently strip equity from an elderly African American couple in Chicago. Following this loan from origination to securitization highlights responsibility for the wave of early payment default loans that contributed to the implosion of subprime lending. The Delaney loan, funded by subprime lender Mortgage Investment Lending Associates (MILA), was representative of the stated income, no down payment loans that defaulted in 2006 at the peak of the subprime bubble. MILA was suffering financially from demands to repurchase loans and was insolvent as early as 2004. MILA underwriters approved the Delaney loans despite obvious indications of fraud. Goldman Sachs bought MILA loans for inclusion in a $1.5 billion residential mortgage-backed security. Goldman Sachs warned investors that subprime loans were high risk and promised extensive due diligence. When subpoenaed for evidence of due diligence on MILA, Goldman Sachs provided none. The drive to generate profits through securitization explains why Goldman Sachs did not investigate and did not uncover MILA's inability to repurchase a growing portfolio of early payment default loans. Competition to buy subprime loans for securitization relieved lenders like MILA of pressure to verify that their loans were sustainable and not fraudulent.
Naomi E. Boyd, Davide P. Cervone, Presha E. Neidermeyer and Adolph Neidermeyer
– The purpose of this paper is to evaluate the continued adherence to “standing” rules of thumb for the percentage of pre-retirement income which should be available to retirees.
Abstract
Purpose
The purpose of this paper is to evaluate the continued adherence to “standing” rules of thumb for the percentage of pre-retirement income which should be available to retirees.
Design/methodology/approach
An analysis of census data to determine both the cause and magnitude of the debt load which retirees are carrying into their post-working years.
Findings
The “standing” rules of thumb appear to provide less than adequate levels of income for retirees to service their continuing debt load which they have chosen to carry into their retirement years.
Research limitations/implications
Census data are subject to the accuracy of “captured information” provided by the surveyed individuals. In this case, the information captured is consistent with generally reported data on the sufficiency of retirement income.
Practical implications
Financial planners need to “get the word out early” that individuals need to consider earlier/greater funding of their anticipated retirement income.
Social implications
Rising retirees may be “precluded” from retiring as anticipated because of the insufficiency of the replacement income they will have during their retirement years.
Originality/value
Detailed census data have not been reviewed in detail with a focus on “individual debt load” as we have performed in this research study.
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M. Teresa Sánchez-Martínez, Jose Sanchez-Campillo and Dolores Moreno-Herrero
This paper aims to study the financial vulnerability of the Spanish households derived from their primary residence mortgage debt payments. This paper shown as the economic and…
Abstract
Purpose
This paper aims to study the financial vulnerability of the Spanish households derived from their primary residence mortgage debt payments. This paper shown as the economic and financial crisis triggered after the burst of the housing bubble brought an unemployment shock and a fall in the disposable family income, which alarmingly aggravated the financial vulnerability of the mortgaged households. Consequently, the number of financially vulnerable households almost doubled.
Design/methodology/approach
Econometric model of discrete election.
Findings
The most vulnerable households – and therefore those with a higher risk of mortgage payment default – are those whose family head is a married and self-employed female. In contrast, in social housing the mortgaged households have been less vulnerable in the context of economic and financial crisis and unlike what would have been initially expected, higher education levels have not acted as a protective factor against households’ financial vulnerability.
Originality/value
There is a great need to understand how the financial health of the mortgaged families that bought their primary residence has deteriorated in a context of significant changes in macroeconomic conditions. This need is specially pressing in a country such as Spain which is one of the OECD’s countries with a higher rate of household property and which shows a sector of highly mortgaged households.
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Velma Zahirovic-Herbert, Karen M. Gibler and Swarn Chatterjee
The purpose of this paper is to evaluate whether low financial literacy is associated with the use of risky mortgages and delinquency.
Abstract
Purpose
The purpose of this paper is to evaluate whether low financial literacy is associated with the use of risky mortgages and delinquency.
Design/methodology/approach
A probit analysis is used to analyze the results of a survey of US homeowners.
Findings
It was found that borrowers with low financial literacy are more likely to have a risky mortgage and be delinquent in their mortgage payments.
Originality/value
The results indicate that many risky loan borrowers may be unable to evaluate the risks inherent in the mortgage, which contributes to high delinquency rates. These results suggest the need for education and caution in the use of risky mortgages.
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