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Risk Sharing in Mortgage Loan Agreements

Author

Listed:
  • Poh Har Neo

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117556, Singapore)

  • Seow Eng Ong

    (Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117556, Singapore)

Abstract

This paper examines whether risk sharing exists in mortgage loan agreements. Specifically, we analyze the effect of the number of co-borrowers on foreclosure risk, using data from Singapore. Through the estimation of probit model, the results consistently show that co-borrowers significantly reduce the foreclosure risk, suggesting the existence of risk sharing among the co-borrowers. In addition, foreclosure risk is reduced proportionately with the number of co-borrowers. Further analysis shows that low-rise properties required a larger number of co-borrowers than high-rise properties in order to share risk effectively. Interestingly, low-rise properties experience a greater decline in the foreclosure likelihood than high-rise properties for every increase in the number of co-borrowers.

Suggested Citation

  • Poh Har Neo & Seow Eng Ong, 2004. "Risk Sharing in Mortgage Loan Agreements," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 233-258.
    • Handle: RePEc:wsi:rpbfmp:v:07:y:2004:i:02:n:s0219091504000135
    DOI: 10.1142/S0219091504000135
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    Citations

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    Cited by:

    1. Seow Ong & Tien Sing & Alan Teo, 2007. "Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 253-280, October.
    2. Tyrone T. Lin & Chia-Chi Lee & Chun-Hung Chen, 2009. "Impacts of the borrower's attributes, loan contract contents, and collateral characteristics on mortgage loan default," The Service Industries Journal, Taylor & Francis Journals, vol. 31(9), pages 1385-1404, October.
    3. Poh Har Neo & Seow Eng Ong & Yong Tu, 2008. "Buyer Exuberance and Price Premium," Urban Studies, Urban Studies Journal Limited, vol. 45(2), pages 331-345, February.

    More about this item

    Keywords

    Risk sharing; foreclosure; Probit model;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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