An Empirical Analysis of Home Equity Loan and Line Performance
National University of Singapore
Brent W. Ambrose
Pennsylvania State University
Government of the United States of America - Office of the Comptroller of the Currency (OCC)
University of Nevada, Reno - College of Business
Journal of Financial Intermediation, Forthcoming
Given the growth in home equity lending during the 1990s, it is imperative that lenders and regulators understand the risks associated with this segment of the residential mortgage market. Using a unique panel data set of over 135,000 homeowners with second mortgages, our analysis indicates that significant differences exist in the prepayment and default probabilities of home equity loans and lines, providing insights into bank minimum capital requirements. We find that households with equity loans are relatively more sensitive to changes in interest rates. By contrast, households with equity lines are more sensitive to appreciation in property value.
Keywords: Home Equity Loans and Lines, Prepayment, Capital Regulations
JEL Classification: D10, E21, G21Accepted Paper Series
Date posted: April 14, 2005
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