How Do Regulators Influence Mortgage Risk?

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Date Published 2013
Primary Author John Y. Campbell, Tarun Ramadorai, and Benjamin Ranish
Other Authors
Theme Regulation and Supervision of Housing Finance Systems
Country India


We employ loan-level data on over a million loans disbursed in India between 1995 and 2010 to understand how fast-changing regulation impacted mortgage lending and risk. Our methodology offers an alternative to regression discontinuity analysis that applies even when regulations create no discontinuities in the cross-section. We use cross-sectional differences in the time-series variation of delinquency rates, conditional on initial interest rates, to detect the effects of regulations favoring smaller loans. We also found that a change in the classification of non-performing assets reduced both delinquency probabilities and losses given delinquency.

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