DP9136 How Do Regulators Influence Mortgage Risk? Evidence from an Emerging Market

Author(s): John Y Campbell, Tarun Ramadorai, Benjamin Ranish
Publication Date: September 2012
Keyword(s): delinquencies, emerging markets, India, mortgage finance, regulation
JEL(s): G21, G28, R21, R31
Programme Areas: Public Economics, Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9136

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.