Borrower Risk Signaling Using Loan-to-Value Ratios

Donald Epley, Kartono Liano and Richard Haney

Journal of Real Estate Research, 1996, vol. 11, issue 1, 71-86

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.

Date: 1996
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DOI: 10.1080/10835547.1996.12090816

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