Working Paper: NBER ID: w27292
Authors: Viral V. Acharya; Katharina Bergant; Matteo Crosignani; Tim Eisert; Fergal J. McCann
Abstract: We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.
Keywords: macroprudential policy; household leverage; mortgage credit; house prices
JEL Codes: E21; E44; E58; G21; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of LTV and LTI limits (Y20) | Reallocation of mortgage credit from low-income borrowers and urban counties to high-income borrowers and rural counties (G51) |
| Reallocation of mortgage credit from low-income borrowers and urban counties to high-income borrowers and rural counties (G51) | Slowed down house price growth in hot housing markets (R31) |
| Constrained lenders adjusting portfolio choices (G51) | Increased risk-taking in non-targeted asset classes (G11) |
| Increased risk-taking in non-targeted asset classes (G11) | More affected banks drive mortgage credit reallocation (G21) |
| More affected banks driving mortgage credit reallocation (G21) | Weakened feedback loop between credit and house prices (F65) |