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Mortgage Lending Institutions in Scandinavia: A study of risk for the period 2000-2013

In the last 14 years there has been a major flux in the Scandinavian financial institutions and real estate markets. The increase in size and openness, in both the markets and the institutions allowed the sector to expand phenomenally, raising concerns about the potential rise of risks.

Concerns regarding the health and state of the Scandinavian real estate and mortgage markets increased with the surge in residential housing prices between 2000 and 2013. However, during this period popular sentiments and media outcry was not met with sufficient academic inquiry into the subject.

We employed a deductive approach in line with our epistemological stance of positivism and ontological belief of objectivism. Thereby, we formulated a quantitative explanatory research employing the panel regression analysis tools in order to address our central question.

The results of the research re-affirmed our earlier intuition as we discovered that interest rates, unemployment, outstanding mortgages and mortgage growth were significant predictors of the delinquency rates. Meanwhile risk weighted assets, mortgage revenue and mortgage share of total assets were significant predictors of distance to default.

These findings highlighted that while individual delinquencies are affected by macro and mortgage business changes, the distress in institutions is characterized by capital adequacy and the flux in their mortgage businesses.Hence, the results of our two-tiered analysis confirmed that mortgage lending institutions is characterized by capital adequacy and the flux in their mortgage businesses.
Source: Umeå University
Authors: Akbar, Syed Anil | Ngoc La, Duyen

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