The Rise of Risk-Based Pricing of Mortgage Interest Rates in Italy

Magri, Silvia; Pico, Raffaella

doi:10.2139/ssrn.1792535

Cited by 59 publications

(14 citation statements)

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“…Mortgage contract characteristics also play a significant role in determining the probability of repayment difficulties. Magri and Pico (2011), using EU-SILC data, find that higher education and income levels reduce the likelihood of household mortgage arrears. Insolvencies are also more likely when the household head is in bad health, unemployed or an immigrant.…”

Section: Overview Of the Literaturementioning

confidence: 99%

“…Information on mortgage arrears refers to whether the household has been unable to pay on time for mortgage repayment in the last 12 months before the date of the interview and thus our analysis mainly relates to 2007, but also covers the first months of 2008. As pointed out by Magri and Pico (2011), this definition may lead to overestimate repayment difficulties as it also includes households that have been in arrears for less than 90 days, the threshold usually considered in bank supervisory reports to determine insolvencies.…”

Section: Data and Descriptive Analysismentioning

confidence: 99%

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The determinants of households’ repayment difficulties on mortgage loans: evidence from Italian microdata

Aristei

Gallo

2016

Int J Consumer Studies

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This article investigates the main determinants of households' repayment difficulties on mortgage loans in Italy. We contribute to the empirical literature on household financial vulnerability by assessing the joint impact of socio-demographic factors, loan characteristics and institutional variables on the likelihood of mortgage insolvency and on the intensity of arrears. Using data from the Italian component of the 2008 European Union-Statistics on Income and Living Conditions (EU-SILC) survey, we firstly identify which types of households are more vulnerable to unexpected adverse events that may trigger repayment difficulties. Specifically, households whose head is young, unemployed or immigrant show a higher probability of arrears and emerge as those suffering more from the adverse economic conditions connected to the crisis. Moreover, household repayment behaviour is affected by mortgage characteristics and, in particular, having modified contract terms significantly increases current arrears probability. Finally, regional institutional and credit market factors mainly impact on the conditional intensity of arrears. This evidence suggests that, although repayment difficulties mainly arise from a genuine inability to repay, households are less likely to pay on time when institutions are less effective at punishing default, confirming the existence of some strategic behaviour.

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Section: Overview Of the Literaturementioning

confidence: 99%

Section: Data and Descriptive Analysismentioning

confidence: 99%

The determinants of households’ repayment difficulties on mortgage loans: evidence from Italian microdata

Aristei

Gallo

2016

Int J Consumer Studies

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“…Regarding the amount of secured debt held, the impacts of time to repossess vary substantially across cohort/age groups.Conditional on obtaining a secured loan, a 15 months longer repossession period decreases by 12 per cent the amount of debt held by the set of households aged [16][17][18][19][20][21][22][23][24][25][26][27][28][29][30][31][32][33][34] and with characteristics other than age held at those of the reference group. 41 .…”

Section: Economic Magnitude Of the Responsesmentioning

confidence: 99%

The Distribution of Debt Across Euro Area Countries: The Role of Individual Characteristics, Institutions and Credit Conditions

et al. 2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The HFCN collects household-level data on households' finances and consumption in the euro area through a harmonised survey. The HFCN aims at studying in depth the micro-level structural information on euro area households' assets and liabilities. The objectives of the network are: Terms of use: Documents in EconStor may1) understanding economic behaviour of individual households, developments in aggregate variables and the interactions between the two;2) evaluating the impact of shocks, policies and institutional changes on household portfolios and other variables;3) understanding the implications of heterogeneity for aggregate variables; 4) estimating choices of different households and their reaction to economic shocks; 5) building and calibrating realistic economic models incorporating heterogeneous agents; 6) gaining insights into issues such as monetary policy transmission and financial stability.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB), Pirmin Fessler (Oesterreichische Nationalbank), Michalis Haliassos (Goethe University Frankfurt) , Tullio Jappelli (University of Naples Federico II), Sébastien PérezDuarte (ECB), Jiri Slacalek (ECB), Federica Teppa (De Nederlandsche Bank), Peter Tufano (Oxford University) and Philip Vermeulen (ECB).The paper is released in order to make the results of HFCN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. AcknowledgementsThe views expressed in this paper are those of the authors and do not necessarily reflect those of the respective National Central Banks or the European Central Bank. We would like to thank Asa Johansson for providing data on pre-and after-tax mortgage interest rates and Richard Blundell and an anonymous referee for helpful comments. All remaining errors are our own. Olympia Bover (corresponding author)Banco de España; e-mail: bover@bde.es Banco de EspañaOlympia Bover, Jose Maria Casado and Ernesto Villanueva Banco de Portugal Sonia Costa National Bank of Belgium Philip Du Caju Central Bank of Ireland Yvonne McCarthy CEPS / INSTEAD Research Institute Eva Sierminska Bank of Greece and Deutsche Bundesbank Panagiota Tzamourani National Bank of Slovakia Tibor ZavadilAbstract The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across...

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“…As outlined by various studies and country-specific reports (European Central Bank (ECB), 2009, p. 63; Magri and Pico, 2011;Georgarakos et al, 2010), in the period from 2004 to 2006, competition from banks and non-banking institutions contributed to a loosening of credit standards on residential loans, with a growing share of mortgages granted to households with a higher credit risk (temporary workers, self-employed workers, young families) and an increase in the loan-to-value ratio up to 100 per cent.…”

Section: Nonoccmentioning

confidence: 99%

“…However, three quarters of the stock of households' mortgage debt is based on variable rates, exposing the bulk of debt to interest rate risk (Table I) (Girouard et al, 2007;European Mortgage Federation, 2006). Also noteworthy is the fact that the Italian banking system suffers a much higher level of mortgage delinquency compared to banks in other European Countries (Magri and Pico, 2011;Georgarakos et al, 2010). Many empirical studies -few of them, however, focusing on the Italian mortgage market -have investigated the issue of mortgage choice between fixed and adjustable rate, though they mainly focus on the level and evolution of interest rates.…”

Section: Introductionmentioning

confidence: 99%

Why do Italian households prefer adjustable rate mortgages?

Zocchi

2013

Journal of European Real Estate Research

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Pass the trash": The mortgage default crisis as state-corporate crime", Sociology of Crime, Law and Deviance, Vol. 15 pp. 17-41 Access to this document was granted through an Emerald subscription provided by 380560 [] For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -In Italy three quarters of the stock of households' mortgage debt is exposed to interest rate risk. The aim of this paper is to explain why the majority of mortgage holders in the Italian residential mortgage market have chosen a mortgage with a variable interest rate. Design/methodology/approach -The empirical analysis has been carried out on a sample of 959 Italian households on the basis of data from the Survey on Household Income and Wealth by the Bank of Italy and covers the period between 1997 and 2006. Findings -The outcomes raise some doubts about the efficiency of the Italian mortgage market in terms of risk allocation between banks and householders. Fixed rate mortgage (FRM) versus adjustable rate mortgage (ARM) choice appears to be guided by a short-term outlook informed by the need to maximize a household's immediate utility. Furthermore, households seem to embrace a myopic perspective, since the preference for ARMs increases with the lengthening of the maturity of the mortgage and with any increase in the size of the principal amount. Also, lending policies appear to have a considerable influence on a household's FRM-ARM choice. Practical implications -It seems that the Italian mortgage market requires adequate initiatives to improve households' financial literacy. Some measures to mitigate the assumption of the interest rate risk by households would be also welcomed. Originality/value -This study represents the first investigation into the relationship between lending policies of banks and householders' mortgage choice from the perspective of a country distinguished by a high and persistent preference for the adjustable rate mortgages.

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The Rise of Risk-Based Pricing of Mortgage Interest Rates in Italy

Cited by 59 publications

References 99 publications

The determinants of households’ repayment difficulties on mortgage loans: evidence from Italian microdata

The determinants of households’ repayment difficulties on mortgage loans: evidence from Italian microdata

The Distribution of Debt Across Euro Area Countries: The Role of Individual Characteristics, Institutions and Credit Conditions

Why do Italian households prefer adjustable rate mortgages?

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