Analysis of Recovery Determinants of Defaulted Mortgages in Nigerian Lending Industry

Abstract

Credit is a major input in the making of investments, the availability of which affects the level of development in sectors of nation’s economy across all countries of the world. However, the continued increase in loan default with low corresponding recovery of same has reached a worrisome dimension globally. The huge credit losses arising largely from unrecovered defaulted mortgages have attracted the attention of practitioners and academia which has led to serious empirical researches. However, it is pertinent to note that much more attention has been given to loan default than the recovery of defaulted mortgage loans. The current paper attempts to investigate the determinants of recovery of defaulted mortgage loans in Nigerian lending industry. Data on three thousand, one hundred and ninety seven (3,197) defaulted mortgages from 1999-2011 were gathered from the databases of some selected Commercial Banks (CB) and Primary Mortgage Institutions (PMIs) in Nigeria. Using Logistics Regression Model (LRM), the result reveals that growth in Gross Domestic Product (GDP), borrower status, borrower’s history of default, year of borrower, business relationship with bank, loan supervision, age of collateral and location of real estate collaterals are significantly positive determinants of loan recovery. It was also found that inflation growth rate, interest growth rates, priority of collateral and collateral revaluation are significantly but inversely related to loan recovery, while such factors as loan-to-value (LTV), loan size and loan duration though insignificant exert positive influence on possibility of recovery. A proper understanding of the interplay of these various factors provides information to lenders and finance regulators.

Keywords: credit; logistic model; mortgage; recovery