Personal Housing Mortgage Loan Default Risk Analysis

With the sustained and rapid development of economy in China, the urbanization quickens significantly, the income of urban and rural residents increases a lot, purchasing willingness and ability are rising considerably, and as a result, the residential mortgage loan also develops rapidly. At the end of 2008, the individual housing mortgage loan balances have already reached 3000 billion yuan, accounting for about 10 percent of all loans, with an average of annual growth rate at more than 20%.Currently, the expectation of RMB appreciation is intensely strong and resources are increasingly scarce, numerous investment funds have swarm in the real estate market of the large-and- medium sized city, causing a continuous rising price of house. The rising of house price is much faster than that of residents'income, which has become the main factor that constraints the stable and healthy development of the real estate market. On the one hand, low-income people unable to purchase house which inhibits the effective demand of real estate market; on the other hand, the accumulation of the real estate bubble increases the potential risks of personal housing mortgage loans and makes the default rate begin to rise. Once a large number of loan defaults happen, it will have a significant impact on our country's economy.At the same time, the outbreak of United States'subprime mortgage crisis in 2007 makes us have a better understanding of the risks of residential mortgage loan. Since "911", in order to avoid the economic recession, the United States has taken a low interest rate policy and long-term low interest rates, which gives birth to the real estate bubble and it develops rapidly through the financial derivative products such as the securitization of the subprime mortgage loan, leading to consistent accumulation of asset bubbles. Since the real estate bubble shows its rupture signs in 2006, the subprime mortgage loan crisis spread in the financial markets, which has not only reversed American economic rapid development trend, increasingly showing signs of recession, but also has great impact on the international financial market, leading to the continuous downlink on major stock markets and the obvious slowing down of the world economy. At the background of larger bubble in the domestic housing prices and the enormous impact of American subprime mortgage loan crisis, we have to re-inspect the risk of domestic personal housing mortgage loan default and rush to institute the preventive measures.Starting with analyzing the basic concepts of individual housing mortgage loans and the basic situation of our country, this article discusses the formation theory of individual housing mortgage loan default risk systematically, and takes the United States subprime mortgage crisis as an example, analyzing the crisis evolving mechanism and the default factors, trying to identify the main factors that effecting China's individual housing mortgage loan default risk, so as to put forward the countermeasures and suggestions to complete the prevention mechanism of our country's individual housing mortgage loan default risk, to reduce the financial risks, which will have positive theoretical and practical significance on promoting the healthy development of the individual housing mortgage loan market.Followed is the specific structure of the contents:Firstly, a summary of individual housing mortgage loans and the default risk. Individual housing mortgage loan is a form of loans, means that the mortgagor use the real estate that they bought as mortgage, apply to borrow money from the financial institutions according to the ratio of the money for purchase of houses and commit to repay their loans monthly in a certain period. Individual housing mortgage loan market includes the primary and secondary markets; the primary market is a market that offers loans directly while the secondary market is for mortgage bonds transferring. The establishment of secondary market has great significance for lending institutions to expand financing channels, decentralized liquidity risk, but it can not replace the primary market on its functions of loans risk control and prevention, as the default risks of personal housing mortgage loan primary market are the biggest risk of mortgage market. At present, China's individual housing mortgage loan primary market develops rapidly while the secondary market has not yet been established, but the tasks to prevent the risk of personal housing mortgage loans become more urgent and daunting with the accumulation of the real estate market bubble. Secondly, the theoretical analysis of the risk formation of individual housing mortgage loan default. Overseas studies mainly concentrated in the characteristics and violations of breach of contract while the most domestic studies do reasoning and qualitative analysis on individual housing mortgage loan based on the overseas studies. After carding many literatures at home and abroad, this article discusses it from the following three aspects. First of all, rational or forced mortgage defaults of housing mortgage loan theory. By analyzing the borrowers are due to objective reasons, resulting in payment difficulties and breach of contract, or after analyzing the default revenue and cost, the borrowers consider they will get greater profits resulting from breach of contract subjectively, I summed up the real estate prices, income levels of borrowers, repayment amount, balance of underpayments have greater impacts on default risk. Then, housing mortgage default risk option theory, namely, borrowers take the future earnings arising from the mortgage estate as an "option" , after using option theory weighing the future benefits and costs ,they decides whether to default, that is, the rights and interests of loans ratio are the main factors affecting the default. Thirdly, characteristics of housing mortgage default research theories, by carding the factors such as loan-to-value ratio , home equity, lending rate, Payment method, homes worth that may effecting the housing mortgage default risk from the following three aspects: loan characteristics, borrower characteristics, housing characteristics, based on the above theoretical analysis, combined with the actual situation, I think real estate prices will probably be the biggest factor that of defaulting and as a result assessment of the value of the property will also have a direct impact on mortgage repayment.Thirdly, analyze the United States subprime mortgage crisis in-depth and distinguish the main factors that influence the individual mortgage default. The so-called subprime mortgage loan refers to the mortgage offering to the borrowers having a low level of credit and low repayment ability. The bursting of the bubble in real estate of the United States directly led to the rise of subprime mortgage default rates. As the subprime loans support a large bond and derivatives markets, the increase in default rates made all markets affected that relate to the sub-loan , which turned out to be a global financial crisis. Through discussion and analysis of cause of subprime mortgage crisis combined with the above formation theory of the default risk, this paper makes a detailed analytic demonstration on the following factors that effecting personal mortgage default such as the individual mortgage borrowers default credit, repayment income ratio, loan purpose, loan value, loan interest rates, real estate prices, financial regulatory authorities, etc.Fourthly, according to the main risk factor of China's individual housing mortgage loans default, this article puts forward some countermeasures and proposals for the prevention of individual housing mortgage loan default risk. In view of the current real estate market and current development situation of personal housing mortgage loans, as well as loss of personal credit system, the imperfect individual housing mortgage loan risk transfer mechanisms, and the improper internal management of lending institutions, this article proposes some policy recommendations to the consummation of risk guard mechanism: Firstly, to promote healthy and stable development of the real estate market, including inhibit investment and speculative trade demand and increase the effective supply of housing and standardize and consolidate the real estate market order; secondly, set up a sound related system suitable to China's national conditions, including personal credit system , sound property rights registration system and perfect quality assurance system of housing and housing value assessment system. Thirdly, under the condition of strengthening the financial supervision, we should vigorously push forward financial innovation, develop the individual housing mortgage loan secondary market steadily and diversify the housing credit risk moderately. Fourthly, strengthen the internal management of lending institutions and improve the risk control.Starting with the theoretical analysis and case study research method, the article explores how to identify the main factors that effect individual housing mortgage loan default risk. Through the analysis of individual housing mortgage loan default risk on the primary market and empirical research results of the prevention at home and abroad, taking the cause of U.S. subprime mortgage loan crisis as an example, combing it with our country's current economic environment, this article discusses how to build a practical risk management mechanism that suits the specific conditions of our country.