Effect of types of mortgages on Financial performance of mortgage Institutions in Kenya

Abstract

This paper examines the proportion of mortgages issued to total assets held by mortgage companies in Kenya. The paper also examines the relationship between the types of mortgage held and the financial performance of the mortgage companies using data for the period 1993-2002. The study used secondary data obtained from various documented sources including financial statements, annual reports, journals, organizational magazines and end of year reports. Data analysis was carried out using SPSS and Excel computer packages and regressed using the least squares method. Previous research has modeled the relationship between stock returns and real economic activity as a function of production technology. Having identified and determined the mortgage types, the results obtained show that there indeed exists a significant relationship between the types 'of mortgage and earnings of the individual institutions. In addition, the study findings reveal that earnings were greatly influenced by fixed rate mortgage, income property mortgage and interest only mortgage. However, with fewer mortgage borrowers, high interest rates, high default rates among the borrowers, coupled with low performing adjustable rate mortgage and capital rate mortgage, mortgage institutions have experienced uncoordinated investment decisions resulting to decreased investment which possibly explain the low financial performance of mortgage companies in Kenya.