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Loan to Value Caps and Government-Backed Mortgage Insurance: Loan-Level Evidence from Dutch Residential Mortgages

Author

Listed:
  • Leo Haan

    (De Nederlandsche Bank
    Centrale Bank van Aruba)

  • Mauro Mastrogiacomo

    (De Nederlandsche Bank
    Vrij Universiteit Amsterdam
    Netspar)

Abstract

Using loan level data on mortgage loans originated by Dutch banks during 1996 to 2015, we analyse the determinants of the incidence of non-performance. We find that both the originating loan-to-value ratio (OLTV) and the debt-service-to-income ratio are significantly positively associated with the probability of non-performance. The results suggest that mortgages with government-loan-guarantees perform better. Moreover, several mortgage loan and borrower characteristics, such as the (interest-only) loan type and the underwater status of the borrower, increase credit risk. Our model predictions suggest a novel policy implication: in order to avoid acceleration of non-performance probabilities, the OLTV-limit should be set to about 70–80% for uninsured mortgages, and to about 90% for those with mortgage insurance.

Suggested Citation

  • Leo Haan & Mauro Mastrogiacomo, 2020. "Loan to Value Caps and Government-Backed Mortgage Insurance: Loan-Level Evidence from Dutch Residential Mortgages," De Economist, Springer, vol. 168(4), pages 453-473, December.
    • Handle: RePEc:kap:decono:v:168:y:2020:i:4:d:10.1007_s10645-020-09367-w
    DOI: 10.1007/s10645-020-09367-w
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    References listed on IDEAS

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    1. Richard Ronald & Kees Dol, 2011. "Housing in the Netherlands Before and After the Global Financial Crisis," Chapters, in: Ray Forrest & Ngai-Ming Yip (ed.), Housing Markets and the Global Financial Crisis, chapter 6, Edward Elgar Publishing.
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    4. Johan Verbruggen & Remco van der Molen & Steven Jonk & Jan Kakes & Willem Heeringa, 2015. "Effects of further reductions in the LTV limit," DNB Occasional Studies 1302, Netherlands Central Bank, Research Department.
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    Cited by:

    1. Alin Marius Andries & Anca Copaciu & Radu Popa & Razvan Vlahu, 2021. "Recourse and (strategic) mortgage defaults: Evidence from changes in housing market laws," Working Papers 727, DNB.
    2. Yeorim Kim & Mauro Mastrogiacomo, 2024. "Residual-debt insurance and mortgage repayments," Working Papers 823, DNB.

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    More about this item

    Keywords

    Credit risk; Mortgage loans; Loan to value; Loan guarantees; Mortgage insurance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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