Heterogeneous Preferences of Russian Residential Mortgage Borrowers
Purpose: This paper examines heterogeneity of preferences of mortgage borrowers of Russian state-owned supplier of residential housing mortgages.
Methodology: Analysis takes into account the underwriting process and the choice of contract terms of all loans originated from 2008 to 2012. Our dataset contains demographic and financial characteristics for all applications, loan terms and the performance information for all issued loans by one regional bank which operates government mortgage programs. We use a multistep semiparametric approach to estimate the determinants of bank and borrower choice controlling for possible heterogeneity of preferences, sample selection and endogeneity of contract terms.
Findings: We found that demand of low-income households who are unable to afford improving of housing conditions by other instruments than government mortgage is less elastic according to the change both in interest rate and maturity compared with higher incomed households.
Originality: The main contribution to the literature is modeling choice of contract terms as interdependent by structural system of simultaneous equations with heterogeneous marginal effects.