Risk Sharing in Mortgage Loan Agreements

Poh Har Neo () and Seow Eng Ong ()
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Poh Har Neo: Department of Real Estate, National University of Singapore, 4 Architecture Drive, Singapore 117556, Singapore

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 02, 233-258

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.

Keywords: Risk sharing; foreclosure; Probit model (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091504000135

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