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

Leo de Haan and Mauro Mastrogiacomo ()
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Mauro Mastrogiacomo: De Nederlandsche Bank

De Economist, 2020, vol. 168, issue 4, No 1, 453-473

Abstract: 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.

Keywords: Credit risk; Mortgage loans; Loan to value; Loan guarantees; Mortgage insurance (search for similar items in EconPapers)
JEL-codes: G20 G21 H81 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10645-020-09367-w

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