Individual housing mortgage prepayment risk, the empirical research
|School||Southwestern University of Finance and Economics|
|Keywords||Personal Residential Mortgage Prepayment Risk Empirical Study|
Since 1998, the business of personal residential mortgage has developed rapidly in China. According to 2004 China Real Estate Financial Report issued by the People’s Bank of China, since 2002, the balance of personal residential mortgage has soared considerably to 1592.23 billion yuan at the end of the year 2004 (an increase of 35.1% over the same period of the previous year), and to 1674.37 billion yuan in the first quarter of the year 2005 (an increase of 30.9% over the same period of the previous year) respectively. Recent years have witnessed the general trend of prepayment in some regions due to the development of personal residential mortgage and the sustained increase of loan interest. Recently commercial banks have worked out more or less measures to restrict prepayment, which indicates that commercial banks’attitudes towards prepayment have changed: at the very start of the business of personal residential mortgage, prepayment was acquiesced while now it is restricted and controlled. Thus, study and control on the prepayment risks have already become the key research subjects of the risks management of personal residential mortgage. Under this context, the present thesis identifies the main factors that influence the risks of personal residential mortgage at present in China by means of empirical study on the collected data of personal residential mortgage, thus to provide theoretical and technical parameters for commercial banks to effectively manage the prepayment risks of personal residential mortgage.In the Introduction, the issues with regard to prepayment risks are put forward based on the current status of personal residential mortgage in our country. Thereafter several key concepts focal to understanding the whole thesis are elaborated, such as personal housing loan, personal residential mortgage and installment loans, prepayment risks of personal residential mortgage, cancellation of redemption, the primary markets and secondary markets of personal residential mortgage. The end of the thesis touches on the methods and strategies taken in the thesis and redefines the key issues.In the Western developed countries, the business of personal residential mortgage has had a history of nearly 100 years. In these countries, the prepayment risks management has been rather mature both in terms of theoretical aspects and practical application, as evidenced by the numerous research achievements already made in this respect. Chapter two and chapter three of this thesis tend to make a systematic generalization and summery of the research achievements and practical applications in foreign countries. Chapter two dwells on the literatures concerning prepayment risks of personal residential mortgage. In this chapter, the factors influencing the prepayment risks of personal residential mortgage and the corresponding evaluation methods employed by foreign scholars are expounded and at the same time the prepayment models established by foreign scholars and the latest development in this area are introduced. Previous research works done by Chinese scholars on the prepayment risks of personal residential mortgage are reviewed and summarized too. At the end of the chapter makes a dynamic comment on the above-mentioned theories and research achievements. Chapter three summarizes the international experiences in prepayment risks management of personal residential mortgage. On the basis of the comprehensive knowledge of the practices and experience of financial agencies in such countries as United States of America, Netherlands and Hong Kong, this chapter analyzes the significance of applying the management methods and practices aforesaid to variables selection and management strategies in the empirical study of this thesis, and thus lays a solid practical foundation for chapter four and chapter seven.On the basis of learning from the research work of the same nature done abroad, chapter four touches upon variable selection and quantization in connection to the available investigating materials of credit records in Chinese commercial banks. Finally among the materials, 16 independent variables are chosen as a basis for further analysis. Variable quantization mainly follows the line of the quantization method of the similar research abroad and non-scaled variables are represented with pseudo variables. Such methods prevalent in foreign research as factor analysis, discriminant analysis, clustering analysis and the model Logistic are mainly chosen in model selection. All sample data are from the credit records of personal residential mortgage in the 24 branches of certain state-run bank in Chengdu since the year of 2000. Such an investigation leads to 4133 samples of normal payment and 3605 samples of prepayment. The strictly controlled inspection and selection finally results in 3733 samples of normal payment, 3107 samples of prepayment, and the effective totality of 6840 samples.Chapters five and six reach a conclusion by using the software SPSS13.0 in discriminant function analysis and clustering analysis concerning the prepayment risks of personal residential mortgage. The conclusion reads as follows:1. Through factor analysis and discriminant analysis, the thesis draws such conclusion:①the better the debtor’s financial condition, the smaller possibility of prepayment;②the longer the time limit, the smaller possibility of prepayment; the payment methods will determine the possibility of prepayment: equal principal payment results in higher possibility of prepayment than equal interest payment; the more loans, the more possibility of prepayment;③the married tend more to make prepayment than the single. The older the debtor, the more possibility of prepayment;④the higher the loan interest and the housing price, the more possibility of prepayment;⑤the higher percentage of the monthly payment in the family income, the more possibility of prepayment;⑥the higher the education degree the debtor holds, the more possibility of prepayment; more unstable the income, the lower the possibility of prepayment;⑦it is more possible for the natives to make prepayment;⑧it is much more possible for the female debtors to make prepayment than the male debtors.2. Through discriminant analysis, the relative importance of each factor variable on the prepayment risk of personal residential mortgage is obtained. Among the above-mentioned eight factor variables, there are considerably varying degrees of difference when they exert influence on the prepayment risks. By comparison, the three factor variables with the greatest absolute values are such factors as loan status, profession and academic degree, and marital status; the three factor variables with the smallest absolute values are such factors as sex, loan interest and housing price and the absolute financial condition. Though each factor variable exerts varying degree of influence on the prepayment risks of personal residential mortgage, the actual practice of prepayment depends on the collaborated operation of all the factors.3. Through cluster analysis, according to the similar features of the prepayment risks reflected in the samples, the debtors are divided into three categories which represent those holding high academic degrees with stable profession (the first category), those mid-aged people with high income (the second category), and the single young people (the third category) respectively. It is most possible for people of the first category to make prepayment, and people of this category are the key objects for prepayment risk management of commercial banks; it is least possible for people of the third category to make prepayment, while people of the second category stand between the two categories.4. By using the research model Logistic, the main factors influencing prepayment risks of the three categories of people mentioned above are obtained. In the sequence of importance that factors influence the prepayment risks, the factors influencing the first category of people are absolute financial condition, loan status, academic degree and profession, those influencing the second category are loan status, investment features, academic degree and profession, and financial burden, and those influencing the third category are academic degree and profession, loan status, interests and housing price.According to the conclusions drawn from literatures and empirical study, the thesis explores the countermeasures for Chinese commercial banks to improve the management over prepayment risks of personal residential mortgage. These countermeasures include:①to correctly understand the prepayment risks;②to set up the database of personal residential mortgage;③to rationally establish and perfect a contract-breaking system;④to flexibly adopt hedging operation in the balance;⑤to launch financial tools for hedging operation in the market as soon as possible;⑥to promote the innovative practice of personal residential mortgage and work out various items to attract customers;⑦to develop the secondary market for personal residential mortgage so as to effectively manage risks.At the end of the thesis, a point is made that there is still a gap in terms of the empirical study on prepayment risks of personal residential mortgage in China. In this sense, the present thesis paves the path for the further research in this respect. Admittedly, such a research still opens up many possibilities for the future perspectives regarding this area. Chapter eight serves as a summery of conclusion and points out the drawbacks thereof. On the basis of summery of the main ideas of the thesis, the main achievements, academic value and practical significance of the ideas are analyzed, and the major drawbacks, limitations, and issues needing further research are presented as well.