Working Paper: NBER ID: w18394
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 use cross-sectional differences in the time- series variation of delinquency rates, conditional on initial interest rates, to detect the effects of regulation on mortgage delinquencies.
Keywords: Mortgage Regulation; Emerging Markets; Delinquency Rates
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory environment favors small and micro loans (G21) | Higher propensity for small and micro loans to default (G21) |
| Tightness of regulatory constraints favoring small loans (G21) | Excess delinquency propensity of small and micro loans (G21) |
| Regulatory change in March 2004 (G18) | Closer monitoring of loans (G21) |
| Closer monitoring of loans (G21) | Reduced long-term defaults (G33) |
| Regulatory change in March 2004 (G18) | Loans flagged as one month delinquent are less likely to become three months delinquent (G51) |