Hypothesis writing for following points : 1.How Borrowers age affect default 2.How Borrowers income affect default 3.How Employment status (i.e. employed and unemployed) affect default 4.How Borrowers...

Answer 1. Loan is one of the most important business products for any financial institutions. In fact, loans contribute far more prominently to the sustainable financial health for any banks as well as can be anticipated as most valuable assets for any bank and its subsequent portfolio. For any financial institutions, mortgages and loans definitely takes into consideration a large portion of their assets and have held accountable for evaluating for determining the overall performance of the banks yet with lack of supervision it can convert into liabilities. In last decade, we have witnessed increasing number of loan defaults and primary factor leading to the delinquencies can he high-interest rate, failure of the business to asses to income as well as lack of supervision. Borrower who falls in the age-groups of 35 years to 44 years are 10% evaluation points that makes it far more probable to ensure serious delinquency than a borrower between the age-group between 18 years to 20 years which have 13% points (Andersson, F. and Mayock, T., 2014). Age of the borrower have tremendous impact on earning potential and re-paying his/her debt. Essentially, as a person age, they have greater probability to develop certain kind of disabilities that might impact the tendency to consistently work in the job. This may also lead to reduction in number of hours one can contribute at work or flexibility to change occupation which can have negative influence on stream of inflow of capital. Therefore, profiles of borrower are always evaluated with age-earning profiles which are critical to comprehend how smoothly an individual can re-pay the debt over the life-cycle. Therefore, age might not have any direct impact on the default rate however, it is much likely that lower age-bracket an individual fall into have more time-span to repay his/her debt thereby reducing the probability to default.
Answer 2. The capability to repay can be explained as the financial capacity of individual to make good on debt. It can be explained as the requirement that borrower substantiate the potential borrowers such that they can afford the mortgage. As per the CFPB, Consumer Financial has shared certain principles, the loan originator needs to comprehend the cumulative income of the borrower as well as assess what are the existing debts one needs to repay (Bacon, P. M. and Moatt, P. G., 2012). Therefore, one needs to ensure that current debt plus the potential mortgage as well as all the related expenses shouldn’t exceed the stated percentage of the borrower's income. For majority of American households, purchasing a home exhibits one of the largest expenditure in the lifetime. Since the homeowners finances their real-estate with mortgage and is one of the biggest source of debt. As per the research, 10% mortgage payment reduction minimises default rates by 22% while for borrowers who remained underwater (Bacon, P. M. and Moatt, P. G., 2012). It is evident to found that homeowners who generally default on their mortgage, default can be correlated with the drop in the income. Therefore, high is the income potential more is the earning and less is the probability to default.
Answer 3. Indeed, status of employment like unemployed or employee also impact the rate of default. Essentially the probability of default is the likelihood over a particular period of time during which borrower needs to ensure he/she make the schedule repayments. If an individual is unemployed and have no regular stream of income then it is quite likely to default on the debt repayment (Blank, D. M., 1954). Furthermore, in an economy where employment opportunities are less or perhaps there is relatively high state of unemployment rate in the country then it is quite likely that individual won’t be able to substantiate his/her mortgage or repay the loan taken from the banks which enhances the overall rate of default. The increase in the unemployment in default can amplify the wage functions as well as overall persistence of the unemployment perhaps of frictions can be considered as the critical reason of producing clustered defaults.
Answer 4. There is a direct impact of level of education of borrower with his/her ability to repay the debt or default. Essentially, when a person is academically strong and well-educated then he/she can harness the power of knowledge to attract several stream of income which can support in the repayment of debt and avoid any kind of defaults. While on the other hand if an individual has low level of education, then it is imperative that earning potential will be very less and perhaps, they might also quit the occupation easily due to lack of knowledge (Bajari, P., Chu, S., and Park, M., 2008).
Answer 5. Indeed the crime rate of borrower also have the direct impact on the default rate If one has criminal records then it is certain that it will reflect in their credit ratings because there is a high...