The Determinants of Default on Insured Conventional Residential Mortgage Loans

Article Abstract:

A multinomial logit model is developed to aid in determining the causes of default of insured home mortgages. Interest rate risk has been shifted to depository institutions from the borrower. Data from the Mortgage Guaranty Insurance Corporation from 1960 through 1980 show the principle causes of default and prepayment. Default is linked to original loan/value ratios and unemployment.

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Fixed versus Variable Rate Loans

Article Abstract:

Fixed and variable rate loans are analyzed to determine the effect of rate shifting. An optimal mix of both is determined for a bank's portfolio. The payoff functions depend on the type of function financed. Both interest rate risk and credit risk will be present in the optimal bank portfolio.

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Mean-Variance Versus Direct Utility Maximization

Article Abstract:

Formulation is derived for the best mean-variance efficient portfolio that has almost maximum expected utility. Portfolio choice may be made from an infinite number of portfolios. This extends Levy and Markowitz' work on the ordering of portfolios.

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