Early Repayment Research Articles

The commission for early repayment of mortgage loans in Spain. A proposal for improvement

El objetivo de este trabajo consiste en analizar la evolución de la normativa referida a la comisión por amortización anticipada de préstamos hipotecarios en España y en plantear una propuesta de mejora que beneficie más a los clientes que la normativa vigente. Para ello se analizan los efectos de esta evolución normativa sobre un caso distinguiendo diferentes escenarios de tipos de interés, con diferentes normativas y teniendo en cuenta la propuesta planteada. Los resultados muestran que las normativas que afectan a la aplicación de comisiones por amortización anticipada de préstamos han ido elevando el nivel de protección de los clientes de los servicios bancarios y el equilibrio entre las partes (prestamista y prestatario) a lo largo del tiempo. Por este motivo, con la normativa actual (Ley 5/2019) se aplican unas comisiones menores que con las normativas anteriores ya que se han eliminado las comisiones por amortización anticipada y se han establecido límites a la compensación por riesgo de interés que suponen un menor coste para los prestatarios cuando amortizan anticipadamente sus préstamos, pero sin producir escenarios adversos para los prestamistas debidos a la evolución de los tipos de interés. Además, la propuesta planteada sigue en esta línea de beneficio al cliente e incluso la mejora sustancialmente porque los componentes de la comisión se basarían en criterios de valoración financiera y la pérdida financiera para la entidad se mediría de forma más razonable.

가계부채 관리를 위한 주택담보대출 부분조기상환의 특성에 관한 연구

This study empirically analyzes the characteristics and determinants of partial prepayment. Using data from the KHF, this study divides the prepayment of fixed-rate mortgage loans into partial and full payments. The analysis results are summarized as follows. First, the partial payment scale indicated 25.4% of the full payment, as determined by the specific amount. Second, partial prepayment did not affect maturity. Third, in the case of partial prepayment, the distinction lies in whether there was an application, rather than the level of the application rate. Fourth, partial prepayment exhibited lower susceptibility to market fluctuations. Fifth, making a partial prepayment affected the credit rating, borrower’s age, loan-to-value ratio (LTV), and a dummy variable representing the month. Moreover, estimating partial prepayment is easy owing to the considerable impact of the variables influencing origination and the small influence of market variables. The analysis reveals that partial prepayment has a relatively small LTV and a small DTI, increases with high credit ratings, and has minimal impact on changes in the housing market or the elapsed period. To effectively control household debt, the characteristics of partial prepayment can be utilized, such as charging early repayment fees, determining the repayment mechanism following partial prepayment, and providing policy support. This study focused on the partial prepayment of mortgage loans, an area that had not been previously researched. The findings of the full prepayment analysis were consistent with those of earlier studies; however, the analysis revealed contrasting results for partial prepayment.

Liquid homeownership: Navigating future horizons to turn homeownership into assets in Bucharest, Romania

AbstractThis article examines the financialization and assetization of housing in an Eastern European context by focusing on the specific temporally bounded financial strategies to maintain housing as an asset and vehicle for social reproduction. It proposes the concept of liquid homeownership to account for the varied associations of housing with liquidity and the expectations of future increased exchange value that play an essential role in shaping financial decisions in the present. Drawing on ethnographic research in Bucharest, the article argues that upper‐middle‐class mortgage borrowers strategize their leveraged housing investment by navigating between two future horizons. To ensure that housing is an asset in the long term, mortgage borrowers prefer to evacuate the long‐term of the mortgage contract through medium‐term financial strategies of early repayment. Given the importance attributed to future liquidity from homeownership for providing for old age or securing children's future, the article argues that liquid homeownership, at least for ordinary homebuyers, is a reflection less of short‐term financial interest and more of a long‐term social reproduction need, pointing to the complex intermix of financial calculations and domestic concerns in the context of financialization of housing.

Creating an Innovative Business Model for the Performance of Commercial Dental Clinics

Providing dental care to the population is associated with the active introduction of new technologies, personnel management methods, and business processes. In this sense, dentistry is at the forefront of the development of medicine and other economic sectors. However, the active practical implementation of advanced technologies for the provision of dental services requires personnel to have increased motivation and highly qualified labor, to develop new protocols for patient management, and to use more advanced equipment and materials, while administrative and management personnel should introduce progressive methods of labor motivation and economic and mathematical models of material and moral stimulation. This research aims to create an innovative business model for the development of a commercial dental clinic (CDC) that provides paid dental services. Economic and mathematical modeling and nonlinear programming are aimed at maximizing dentists’ wages, together with financial incentives for the work of administrative and managerial personnel and deductions for the development of a typical commercial dental clinic in Moscow based on the actual volume of dental services and the costs of their provision. With the volume of paid dental services growing by one and a half times, the innovative business model makes it possible to increase clinic income by a factor of 1.66 and dentists’ salaries by a factor of 2.24, raise deductions for labor incentives for administrative and managerial personnel by a factor of 1.66, and increase total profit by a factor of 1.75. During the research, it was possible to ensure early repayment of a loan of 5 million rubles for clinic development in 21 months. Additional research is needed because of the possible variability of the dental market and lending conditions. Doi: 10.28991/HIJ-2024-05-01-05 Full Text: PDF

Does inflation trigger early repayment on Covid-19 UK guaranteed loans?

ABSTRACT The UK government underwrote more than 1.68 million business loans totalling £78.4bn during the COVID-19 pandemic. Given that the Bounce Back Loan (BBL) had a 100% guarantee and the Coronavirus Business Interruption Loan Scheme (CBILS) 80%, the public sector contingent liability is very large. In this article, we explore whether or not the recent and dramatic rises in UK inflation have prompted firms with COVID-19 BBL and CBILS guaranteed loans to repay their outstanding debt early (in advance of the full 6-year loan term as specified in the original loan agreement). Our results show that this was indeed the case with increasing inflation exerting a strong and positive effect on early loan repayment on both guarantee schemes. This is consistent with the firm’s debt aversion and a desire to reduce existing debts in anticipation of a future economic recession, liquidity problems and high interest rates.

Research on the pricing of PPP project ABS products based on the right of income of heating

Introduction: The Public-Private Partnership (PPP) model has the advantages of enhancing the efficiency of social infrastructure construction and reducing the risk of government liabilities, and has been widely used and developed in China. In the current securitization of PPP project assets, the question of how to price them is key to whether the Asset-backed Securities (ABS) products can be issued successfully.Methods: This study analyzes the pricing process and influencing factors of PPP project ABS in the context of PPP projects in China by collating the relevant literature on PPP project ABS products and collating the advantages and disadvantages of the static discounted cash flow (SCF), static spread (SS), and option-adjusted spread (OAS) methods. The study finds that the SCF and SS methods, primarily used in pricing PPP project ABS products, lack consideration of interest rate changes, early repayment rates, and multiple interest rate path options, leading to biased results. This study introduces the Monte Carlo simulation pricing method (MCSM) and conducts an empirical analysis based on the case of the Heating income right ABS of Huaxia Happiness PPP Project ABS.Results: It is concluded that the Monte Carlo simulation method can more flexibly and accurately price PPP project ABS products with revenue rights as the underlying assets.Discussion: This study has reference significance for the pricing of ABS products in future PPP projects and the construction of PPP projects in integrated energy service industrial parks, and can promote the development of new integrated energy service industrial parks, thereby helping to improve the energy consumption structure of enterprises in industrial parks, improve energy use efficiency, ensure the safety of energy use by enterprises, and further enhance the application of new energy by enterprises, thereby reducing their Greenhouse gas emissions.

Principles of creation of securities and features of state regulation of circulation in developed countries

It is noted that two priority directions for the development of the stock market should be determined first when creating a new security. First, it may be the appearance of a new instrument itself, such as the first zero-coupon bond. This is truly a unique type of creativity, which involves the emergence of a qualitatively new technology. Secondly, it can be the design of a tool adapted to solve a specific task by combining already existing technologies. The development of the process of creating securities in different countries is due to the influence of various factors, each of which (or its combination) created the prerequisites for the emergence of new types of securities and new financial schemes. It was determined that in the case of obligations with a fixed rate, the coupon rate of the debt instrument is fixed at the time of issue. The size of the coupon (coupon income) is determined by a number of factors. We call the instrument convertible if it can be exchanged at the discretion of the investor for any other asset of the issuer. As for the corporate issuer, such an asset is usually ordinary shares. The prepayment condition is unattractive to potential investors, so the coupon yield must be raised to sell the instrument. Convertibility, on the other hand, can attract potential investors, and this reduces the coupon size required to sell the instrument. Both recall and convertibility are options. Two main variants of the repayment fund are offered. In the first version of the fund, which is currently the most common, the issuer must periodically buy back a certain part of the volume of the issue in circulation. This redemption can be carried out either in accordance with the terms of early repayment, or by direct access to the open market - depending on the terms of the written issue agreement. In the second option, the issuer makes periodic contributions to a special account controlled by a neutral third party. Income from this account is used to repay the issue when due. Bonds redeemable through such funds are called sinkers in financial jargon. In general, today's settlement funds reduce the level of uncertainty for owners of debt instruments and therefore reduce the required coupon size. However, the degree to which uncertainty is reduced depends largely on the type of settlement fund used.

Leasing as the instrument of financing of the special and construction equipment

The top trends in the Russian leasing market in 2021–2022 are analysed in the article. Changes of the market in the conditions of the anti-Russian sanctions of 2022 are revealed. The structure of the leasing market is characterized. The leading companies which has won the greatest shares in the Russian leasing market are named. The influence of the programmes of support of the development of leasing in the Russian Federation (particularly, the possibility of early repayment of a subject of leasing) are also analyzed.

Greece: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Greece

Greece has weathered the pandemic well, with a considerably stronger-than-expected recovery. Reforms progressed in several areas, including digitalization, privatization, improving the fiscal policy mix, and bank balance sheet repair. Greece finalized its early repayment to the IMF on April 4 and is expected to graduate from the quarterly European Institutions’ Enhanced Surveillance framework on schedule by August 2022. Despite the adverse impact of the war in Ukraine, growth is projected to remain robust at 3.5 percent this year. High energy prices are expected to push up average inflation to 6.1 percent. Public debt is on a downward trajectory and rollover risks appear manageable. The external position last year was moderately weaker than that consistent with fundamentals and desirable policies.

Premature repayment of fixed interest mortgage loans without compensation, a case of misguided consumer protection in the EU

Consumer protection shifts risks from consumers to businesses. This raises marginal costs and equilibrium prices. It is justified when markets are not strong enough to allocate contractual risks or accident risks efficiently, especially in cases of severe asymmetric information between suppliers and consumers. Consumer protection can then increase the consumer’s expected welfare from a contract. We test these considerations in a theoretical and empirical study on consumers' right to early repayment of mortgage loans without damage compensation to the creditor in the European Union. We show in a formal model that such a right can lead to an impairment of consumer welfare, compared with the traditional rule of expectation damages for breach of contract. This applies if the consumer is risk averse and repays a loan with a high interest rate in a low interest period to take up a new loan for the same project at lower interests. From a theoretical point of view, this right has no solid economic underpinning, if it is not restricted to cases of personal hardship of the consumer and serves an insurance purpose. We present empirical evidence supporting this argument. In a panel study on monthly mortgage interest rates of 23 EU Member States between 2005 and 2017 we show how interest rate spreads change with the level of consumer protection.

ASSESSMENT OF THE QUALITY OF THE ASSET POOL FORMED FOR SECURITIZATION IN THE CONTEXT OF ANALYTICAL PROVISION OF THE MANAGEMENT SYSTEM

The lack of an effective methodology for the analysis of asset securitization operations causes problems in the formation of a strategy for managing the process of financing the activities of the initiator of the securitization. The article substantiates the areas of analytical support of the management system in terms of asset securitization: the formation of financial and economic justification of the feasibility and feasibility of securitization of assets (study of potential investors and analysis of prospects for placement of securities; diligence); assessment of the original assets of the originator for the possibility of their securitization; identification of the impact of securitization of assets on the financial performance of the originator; assessment of risks associated with the use of securitization of assets); analysis of the quality of the asset pool generated by the originator for securitization; evaluation of the effectiveness of securitization operations for its initiator. It is also proposed to analyze the quality of the pool of assets generated by the originator for securitization, in the following sequence: assessment of the probability of default and the amount of expected losses on the pool of assets to be securitized; identification of factors influencing the early repayment of pool assets; assessment of the parameters of the formed pool of securitized assets, based on the analysis of its structure and the selected system of indicators; modeling of future payment flows in the pool of securitized assets, which provides the formation of analytical information to decide on the possibility of securitization using the assets available in the originator and diversification of risks through optimal concentration of assets.

ПОКРИТТЯ ІНФОРМАЦІЇ У ФІНАНСОВІЙ ЗВІТНОСТІ: ПРАКТИЧНИЙ ДОСВІД ЗАСТОСУВАННЯ МСБО І МСФЗ

Анотація. Інформаційні запити глобалізованого суспільства змушують суб’єктів господарювання формувати фінансову звітність, здатну задовольними вимоги всіх зацікавлених сторін. Мета статті — оцінити, яку інформацію суб’єкти господарювання розкривають у фінансовій звітності, складеній за МСБО і МСФЗ, та які колізії при цьому виникають. Теоретико-методологічні аспекти результатів діяльності вчених доводять значущість розкриття інформації у фінансовій звітності, складеній за МСФЗ. Разом з тим відкритим залишається питання розкриття інформації у фінансовій звітності, з урахуванням потреб поточної діяльності підприємств. З огляду на це постає потреба: дослідження забезпечення користувачів фінансової звітності інформацією, розкриття якої передбачають міжнародні стандарти; перевірка гіпотез щодо існування необхідності дослідження відмінностей видів фінансової звітності, формування і подання якої передбачають МСФЗ і МСБО, та перегляду довгострокового зобов’язання в разі його дострокового погашення. На основі аналізу встановлено, що інформацію, обов’язкову до розкриття у фінансовій звітності, обумовлює вид фінансової звітності. Проведене дослідження свідчить про наявності в МСФЗ прогалин у порядку складання та інформаційного наповнення комбінованої звітності. Запропоновано комбіновану фінансову звітність складати суб’єктам господарювання, які з тих чи інших причин не відповідають вимогам МСФЗ 10. Установлено, що важливою умовою достовірного відображення у Звіті про фінансовий стан інформації щодо довгострокового кредиту є необхідність проведення аналізу здатності підприємства його дострокового погашення, зокрема протягом року. Запропоновано розглядати частину довгострокового кредиту у формі платежів, які слід погасити протягом дванадцяти місяцівз дати складання звітності як поточне зобов’язання. Такий підхід потребує перекласифікувати наявний кредит із довгострокового в поточні зобов’язання, що призведе до подальних змін оцінок грошових потоків, коригування балансової вартості зобов’язань. Результати дослідження можуть бути використані практиками в різних галузях економіки при формуванні фінансової звітності за МСФЗ. Ключові слова: фінансова звітність, звітність за МСФЗ, фінансові результати, підприємство, стандарти, облік, МСФЗ, МСБО. Формул: 0; рис.: 1; табл.: 1; бібл.: 19.

유한차분법과 병렬 시뮬레이션을 통한 주택저당증권 가치 평가

In this paper, we apply parallel computing using a message-passing interface to pricing the Mortgage Backed Securities (MBS) with multiple tranches. We use the Finite Difference Method (FDM) to the differential equations of modeling MBS and determine the numerical solutions for the MBS. Our benchmark is the MBS 2017-11 issued by the Korean Housing Corporation. To obtain the interest rate condition for mortgage early repayment under the CIR (Cox et al., 1985) assumption, we calibrate the key variables on the interest rate process by the General Method of Moment (GMM). We also define the boundary conditions of the solutions in risk-neutral valuation through the Monte Carlo simulations. Our results suggest that the MBS needs to be issued with a long maturity to keep the risk-neutral position. Finally, we show that the parallel computing process successfully reduces costs and time for MBS pricing.

Surrogacy Program State Regulation Experiment

In the pursuit of family happiness, married couples, faced with family infertility, often turn to surrogate mothers either directly or through intermediaries. Having experienced a large number of negative factors on the part of the participants in this process, the author concludes that it is necessary to create a platform for the effective implementation of the surrogacy program under state control using new (experimental) legal mechanisms within the framework of a pilot state experiment within a certain medical organization. The use of private legal means aims at creating comfortable and safe conditions for the implementation of the surrogacy program. The introduction of special credit conditions (new types of loans issued on special conditions, with additional guarantees), with the possibility of early repayment at the expense of maternal (family) capital will help to stabilize the financial side and protect potential parents.The goals and objectives of the study are to highlight problematic issues related to the implementation of the surrogacy program, as well as to model an experimental platform that will create a favorable legal climate of openness and security for potential parents, surrogate mothers and medical organizations. The paper also analyzes the advantages of the participants of this platform.Research methods are analysis, synthesis, modeling, comparative legal, system analysis, as well as deductive and inductive methods.The result of the conducted research is the author’s reasoned conclusion that the implementation of the experiment on state regulation of the surrogacy program in Russia will not only create favorable legal conditions aimed at the effective implementation of the surrogacy program, but also solve a number of important social, including demographic, tasks.

Parental Support, Savings, and Student Loan Repayment

Using unique survey and administrative data from Canada, we document that parental support and personal savings substantially reduce student loan repayment problems. Developing a model of student borrowing and repayment, we show that nonmonetary costs of applying for income-based repayment assistance are critical to understanding our findings. Furthermore, we show that eliminating these costs may be inefficient. Empirically, we show that expanding Canada’s Repayment Assistance Plan to automatically cover all borrowers could reduce program revenue by half over early repayment years. Finally, we show how student loan programs can be more efficiently designed. (JEL G51, I22, I23, I28)

A hierarchical mixture cure model with unobserved heterogeneity for credit risk

The specific nature of credit loan data requires the use of mixture cure models within the class of survival analysis tools. The constructed models allow for competing risks such as early repayment and default, and for incorporating maturity, expressed as an unsusceptible part of the population. A novel further extension of such models incorporates unobserved heterogeneity within the risk groups. A hierarchical expectation-maximization algorithm is derived to fit the models and standard errors are obtained. Simulations and a data analysis illustrate the applicability and benefits of these models, and in particular an improved event time estimation.

Consumers’ Right to Early Repayment of Mortgage Loans in the EU-Member States, a Case of Misguided Consumer Protection

Consumer protection shifts risks from consumers to businesses. This raises marginal costs and equilibrium prices. It is justified when markets are not strong enough to allocate contractual risks or accident risks efficiently, especially in cases of severe asymmetric information between suppliers and consumers. Consumer protection can then increase the consumer’s welfare from a contract. We test these considerations in a theoretical and empirical study on consumers' right to early repayment of mortgage loans without damage compensation to the creditor in the European Union. We show in a formal model that such a right often leads to an impairment of consumer welfare, compared with the traditional rule of expectation damages for breach of contract. This applies especially if the consumer repays the loan in a low interest rate phase to take up a new credit at lower interests. From a theoretical point of view, this right has thus no solid economic underpinning, if it is not restricted to cases of personal hardship of the consumer and serves an insurance function. We additionally present empirical evidence that supports this argument, among others in a panel study on monthly mortgage interest rates of 23 EU Member States between 2005 and 2017. We show how interest rate spreads change with the level of consumer protection.

Теоретико-методологічні відмінності диверсифікації та сек’юритизації кредитного портфеля банку

У статті досліджується сутність диверсифікації як основного методу управління кредитною діяльністю вітчизняних банків, під час використання якої враховується здатність портфеля кредитів зменшувати можливий ризик за умови врахування до нього різних за характеристиками та складом позик. У статті також зазначено, що диверсифікація дає змогу знизити не лише кредитний ризик, а й інші банківські ризики, які супроводжують загальний кредитний процес: ризик дострокового погашення, ліквідності, процентний, валютний та інші. Традиційна банківська теорія розглядає диверсифікацію як оптимальний спосіб ефективної організації кредитної діяльності, при цьому найефективнішою вважається така позикова діяльність банків, яка є максимально диверсифікованою. Проаналізовано, що кредитний портфель банків України слабо диверсифікований і дуже ризиковий, оскільки більше половини виданих кредитів вітчизняними банками зосереджено у Київській області та більше третини виданих позик знаходяться у торгівлі. У статті чітко виокремлено позитивні і негативні сторони диверсифікації. Завдяки дослідженню процесу сек’юритизації доведено, що для вітчизняних банків вона є відносно новим видом банківської діяльності. Завдяки трансформації неліквідних активів у ліквідні, сек’юритизація зменшує портфельний кредитний ризик банківської установи, що дає можливість розглядати сек’юритизацію як процес перетворення неліквідних активів у цінні папери, тобто як один зі специфічних механізмів здійснення фінансово-економічної діяльності банків. У статті пропонується розрізняти три основні різновиди сек’юритизації: класична сек’юритизація, синтетична сек’юритизація та сек’юритизація бізнесу. У статті зазначено причини, чому українські банки не поспішають застосовувати сек’юритизацію, а також її основні переваги порівняно з диверсифікацією активів.

Credit by any Other Name: How Federal Consumer Financial Law Governs Income Share Agreements

This article analyzes whether Income Share Agreements (ISAs) are governed by federal consumer financial law — particularly the Equal Credit Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010 (CFPA). The paper concludes that all of these federal laws apply to ISAs because ISAs meet the statutes’ various gate-keeping definitions of “credit” and “debt.” Although the question of whether ISAs are “credit” has not yet been addressed by the courts, our analysis reveals that ISAs share essential characteristics with traditional student loans and therefore should be treated the same. Critically, ISAs grant student borrowers the right to defer payment for educational services they receive. They also create debts for borrowers because borrowers are obligated to pay back a percentage of their post-graduation salaries for a defined period or, in the case of default or early repayment, a set amount that is typically a multiple of the amount borrowed. These repayment options result in students either paying back their ISAs in more than four installments or incurring a finance charge. As this article explains, these features of ISA repayment put them squarely within the coverage of existing federal consumer protection law. And the private entities providing them are, in turn, subject to regulation and enforcement under current federal law.

Early Repayment of Loans Under EU Law: The Lexitor Judgment

Recent changes in EU law provide flexibility and protection to consumers, facilitating early repayment of loans, when the consumer is no longer interested in continuing a credit relationship. From an economic point of view, early repayment of loans should be facilitated, because it allows money that is no longer needed to be put to other desirable uses. Under current EU law, as recently interpreted in the Lexitor judgment by the Court of Justice of the European Union, upon early repayment of a loan, consumers can obtain a pro-rated reimbursement of all the up-front and recurring costs of the loan, including origination fees and ancillary service costs. In this brief article, we take a critical look at the current EU approach to this issue, suggesting that, while the legislature made the pragmatic choice in permitting partial reimbursement of up-front costs, this leads to several economic inefficiencies that can ultimately hurt the consumer. Repayment of up-front costs, and of any other sunk cost associated with the creation of the loan, can lead to a suboptimal mix of lending contracts. Some consumers could, in fact, take out a lower interest rate long-term credit, even though they may only need a short-term loan, and this would create a disadvantage for the overall class of consumers. In order to actually protect the economic interest of consumers and carry out the intent of the legislature, we conclude that the up-front costs for non-mandatory ancillary services (such as brokerage fees, etc.) should not be included in the costs that are eligible for reimbursement in the event of early repayment of the loan. By excluding these costs, consumers will not be incentivized to overconsume such services, minimizing the negative externalities imposed on other consumers.