Determionants of Bank Defaulters

**boosami** · 11-07-2008, 05:37 AM

You want to know what causes individuals to default on their loans?

**Fahd Mirza** · 11-11-2008, 07:22 AM

Yes i also want to know about the causes which leads the individuals to default on their loans and also what determines the defaulters?? particularly the determininants of individual bank defaulters. the factors, ways etc and all the determinants of bank defaulters..

kindly do help me and also if anyone knows about the research papers related to this topic.

Highly appreciate your concern

**PetMom** · 11-16-2008, 04:55 AM

I can answer this only from the real estate angle.

When I was in real estate over a decade ago, we always required 20% down for a home (oversimplified statement but basically true). You had to have your own money - none of this credit card down payment nonsense or no down payment nonsense - to get into a house.

The theory was: a homeowner would not walk away or default if they had a lot of investment of their own money in the deal.

A person was 'prequalified' as they walked in the door. We would not even bother driving them around to look at houses until we knew personal detailed info on their income, savings, budget, etc... This would later be verified and they knew it so no padding or shaving off of info.

The easy credit glut with no pre/during/post qualifying for anyone who walked in the door was just not good.

**Seeker** · 11-16-2008, 02:26 PM

Originally posted by Fahd Mirza View Post

I am in need of the information regarding the "Determinants of Defaulters of Banks". The defaulters are the individual defaulters...

Kindly post your opinions and give me help regarding this issue. I highly apprecaiate all of your views!!

There is mainly one reason for "default" -- given the assumption that people intended to make good on the loan in the first place -- and that is the fact that the person no longer (or never really did) have the means (ie "income") to keep paying for it.
So therefore, the main determinant of "who will default" is usually the "income" and "outgo" that that person incurrs in real life beyond housing or rent.
Real "reasons" for default are changes in life; ie. loss of job first and foremost, wage cutbacks, increasing expenses in all other budgeting areas can reduce money for paying back the loan as well. Basically anything that majorly impacts the pocketbook of the borrower.

Second reason for default is also financial, but becuase the borrower "planned" to renegotiate the terms of the loan in order to get a better deal when the property "goes up in value over what the locked in price was" -- essentially borrowing or renegotiating based on the assumed equity that the property "would have had if the ecenomy did not dive" and/or planning to sell the property before a renegotiation or revamp of the terms of the loan (again at a profit).

**tripods68** · 11-16-2008, 03:35 PM

Add to that, the fact Lehman Brother and Bears Sterns were highly leveraged 30:1, meaning for every dollar they invested they borrowed $29.00. A slight decline around 3% puts their company already in peril. Plus the fact they also used "loan default swap" to bet against company's earnings, where the third party collateral used to underwrites these SWAPs like AIG didn't have to put up the reserve in order to meet those obligations.

**maat55** · 11-16-2008, 06:52 PM

Reasons why individuals default on loans.

Lack of sufficient emergency funds.
Loss of income.
Medical emergencies
Lack of responsibility
Identitiy theft.
Excessive spending
Poor financial management skills

Poor financial management knowledge leads to most of these reasons for defaults. Lack of sacrifice and financial planning leaves individuals vulnerable
to financial emergencies that lead to defaults.

**Fahd Mirza** · 11-18-2008, 04:10 AM

Thanks a lot.. so much nice of u all

!!!

Determionants of Bank Defaulters