Working Paper: CEPR ID: DP9136
Authors: John Y. Campbell; Tarun Ramadorai; Benjamin Ranish
Abstract: To understand the effects of regulation on mortgage risk, it is instructive to track the history of regulatory changes in a country rather than to rely entirely on cross-country evidence that can be contaminated by unobserved heterogeneity. However, in developed countries with fairly stable systems of financial regulation, it is difficult to track these effects. We employ loan-level data on over a million loans disbursed in India over the 1995 to 2010 period to understand how fast-changing regulation impacted mortgage lending and risk. We find evidence that regulation has important effects on mortgage rates and delinquencies in both the time-series and the cross-section.
Keywords: Delinquencies; Emerging Markets; India; Mortgage Finance; Regulation
JEL Codes: G21; G28; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory changes encouraging mortgage lending (G21) | spike in delinquencies in the early 2000s (G33) |
| Small and micro loans favored by the Indian regulatory environment (G21) | higher delinquency rates (G33) |
| Regulatory change in the definition of nonperforming assets (NPAs) in 2004 (G28) | decline in three-month payment delinquencies (G33) |
| Regulatory changes (G18) | impact on mortgage risk (G21) |