Dutch Mortgages : Impact of the Crisis on Probability of Default

This paper analyzes the impact of the financial crisis on the probability of default (PD) for a large Dutch mortgage portfolio covering a period from 2001 until 2012. A statistical model has been developed, which determines the likelihood that a healthy mortgage customer defaults within 12 months. The PD model is based on risk drivers which are related to the characteristics of the customers and their products (internal risk drivers) and to market factors such as stock market illiquidity, GDP, unemployment and house price index (external risk drivers). Data shows that the financial crisis did not seem to have had the expected worsening impact on the observed customer defaults. However, this is the result of simultaneous debt collection improvements. This paper shows how the internal drivers of the model are able to pick up the effect of the collection process improvements (decrease in PD), whereas the external drivers add significant value to the model to also address the crisis effect (increase in PD)