An Early Assessment of Residential Mortgage Performance in China

Posted: 14 Jan 2005

See all articles by Della Zheng

Della Zheng

Independent

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Changfeng Ling

Tsinghua University

Abstract

The residential mortgage market becomes a financial engine for the booming residential housing development and sustained economic growth in China. Our study provides the first rigorous empirical analysis on the earlier performance of residential mortgage market in China based on a unique micro dataset of mortgage loan history collected from a major residential mortgage lender in China. We found that while the option theory fails to explain prepayment and default behavior in the residential mortgage market in China, other non-option theory related financial economic factors play major roles in determining the prepayment and default risks in China. We also found that borrower's characteristics are significant in determining prepayment behavior, hence may be used as an effective tool for screening potential high risk borrowers in the loan origination process. Adopting a risk-based pricing in residential mortgage lending in China can improve the efficiency of the market, and enhance the credit availability to the most needed households, i.e., the younger households, blue-collar workers, lower income households, and help them become homeowners.

Keywords: Chinese Mortgage Market, Prepayment and Default, Empirical Hazard Model, Econometric Analysis

JEL Classification: G21, R2, D12, C41

Suggested Citation

Zheng, Della and Deng, Yongheng and Ling, Changfeng, An Early Assessment of Residential Mortgage Performance in China. Journal of Real Estate Finance and Economics, Vol. 31, No. 2. Available at SSRN: https://ssrn.com/abstract=648683

Della Zheng

Independent ( email )

No Address Available

Yongheng Deng (Contact Author)

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Changfeng Ling

Tsinghua University ( email )

Beijing, 100084
China

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