Mortgage modifications and loan performance

Christian Danne and Anne McGuinness

No 05/RT/16, Research Technical Papers from Central Bank of Ireland

Abstract: This paper studies the determinants of receiving a loan modification and the factors explaining repayment after mortgage modification using a unique Irish dataset. Compared to previous studies, our dataset allows us to observe borrower and loan characteristics at the time the borrower experiences payment difficulties and to directly observe the outcome of the renegotiation process. The results show that current borrower characteristics rather than loan characteristics matter for receiving a permanent modification and making full payment after modification. A higher mortgage repayment to income ratio, higher household leverage, and higher household expenditure reduce the probability of receiving a permanent modification and the probability of full payment after modification. In addition, both unemployment and divorce prior to engaging in mortgage renegotiations, reduce the probability of receiving a permanent modification and the payment performance after modification. The change in borrowers mortgage repayment and thus their subsequent mortgage affordability is the key driver of a successful modification, irrespective of the modification type.

Keywords: Mortgage; modification; arrears; banking (search for similar items in EconPapers)
JEL-codes: D14 G01 G21 R31 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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