An Empirical Analysis of Home Equity Loan and Line Performance

44 Pages Posted: 17 Sep 2004

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Brent W. Ambrose

Pennsylvania State University

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Chunlin Liu

University of Nevada, Reno - College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2004

Abstract

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. This paper addresses this need through analysis of 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. We find that households with equity loans are relatively more sensitive to changes in interest rates. On the other hand, households with equity lines are more sensitive to appreciation in property value. Our analysis offers insights into bank minimum capital requirements associated with home equity credit lending.

Keywords: Home Equity Loans and Lines, Prepayment, Capital Regulations

JEL Classification: D10, E21, G21

Suggested Citation

Agarwal, Sumit and Ambrose, Brent W. and Chomsisengphet, Souphala and Liu, Chunlin, An Empirical Analysis of Home Equity Loan and Line Performance (September 1, 2004). Available at SSRN: https://ssrn.com/abstract=591650 or http://dx.doi.org/10.2139/ssrn.591650

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Chunlin Liu

University of Nevada, Reno - College of Business ( email )

University of Nevada, Reno
Reno, NV 89557-0016
United States

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