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Heterogeneous preferences of Russian residential mortgage borrowers

Heterogeneous preferences of Russian residential mortgage borrowers PurposeThis paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.Design/methodology/approachAnalysis 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.FindingsThe 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 implicationsGiven 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/valueThe main contribution to the literature is modeling choice of contract terms as interdependent by the structural system of simultaneous equations with heterogeneous marginal effects. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

Heterogeneous preferences of Russian residential mortgage borrowers

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1753-9269
DOI
10.1108/JERER-02-2016-0009
Publisher site
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Abstract

PurposeThis paper aims to examine the heterogeneity of preferences of mortgage borrowers of Russian state-owned suppliers of residential housing mortgages.Design/methodology/approachAnalysis 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.FindingsThe 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 implicationsGiven 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/valueThe main contribution to the literature is modeling choice of contract terms as interdependent by the structural system of simultaneous equations with heterogeneous marginal effects.

Journal

Journal of European Real Estate Research – Emerald Publishing

Published: May 2, 2017

References

  • The effect of conforming loan status on mortgage yield spreads: a loan level analysis
  • Credit constraints in market for consumer durables: evidence from micro data on car loans