A Multi-State Approach to Modelling Intermediate Events and Multiple Mortgage Loan Outcomes

Clicks: 345
ID: 110063
2020
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Abstract
This paper proposes a novel system-wide multi-state framework to model state occupations and the transitions among current, delinquency, default, prepayment, repurchase, short sale and foreclosure on mortgage loans. The approach allows for the modelling of the progression of borrowers from one state to another to fully understand the risks of a cohort of borrowers over time. We use a multi-state Markov model to model the transitions to and from various states. The key factors affecting the transition into various loan outcomes are the ability to pay as measured by debt-to-income ratio, equity as marked by loan-to-value ratio, interest rates and the property type. Our findings have broader policy implications for better decision-making on granting loans and the design of debt relief and mortgage modification policies.
Reference Key
chamboko2020risksa Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Richard Chamboko;Jorge Miguel Bravo;Chamboko, Richard;Bravo, Jorge Miguel;
Journal risks
Year 2020
DOI
10.3390/risks8020064
URL
https://doi.org/10.3390/risks8020064
Keywords
survival analysis multi-state models recovery delinquency credit risk relief programs mortgage modification

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