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Borrower Risk Signaling Using Loan-to-Value Ratios

Author

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  • Donald Epley
  • Kartono Liano
  • Richard Haney

Abstract

This paper evaluates the signaling capability of the borrower's selected loan-to-value ratio, and finds the equity proportion of housing capital to be a good indicator of the loan's riskiness. It also compares residential mortgage bundles among the commonly used statistical models of multiple discriminant analysis, probit and logit. Classification accuracy and significance are contrasted among the bundles using loan-to-value ratios of 80%, 90% and 95%. The results show major differences in significance and sign changes among loan-to-value ratio levels and the choice of model. All models were highly significant, but classified different variables with substantial differences in the significance levels.

Suggested Citation

  • Donald Epley & Kartono Liano & Richard Haney, 1996. "Borrower Risk Signaling Using Loan-to-Value Ratios," Journal of Real Estate Research, Taylor & Francis Journals, vol. 11(1), pages 71-86, January.
    • Handle: RePEc:taf:rjerxx:v:11:y:1996:i:1:p:71-86
    DOI: 10.1080/10835547.1996.12090816
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    Cited by:

    1. Danny Ben-Shahar, 2008. "Default, Credit Scoring, and Loan-to-Value: a Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 161-190.
    2. Danny Ben-Shahar, 2006. "Screening Mortgage Default Risk: A Unified Theoretical Framework," Journal of Real Estate Research, American Real Estate Society, vol. 28(3), pages 215-240.

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