Loan-to-value policy and housing finance: Effects on constrained borrowers

Douglas Araujo, João Barroso and Rodrigo Gonzalez

Journal of Financial Intermediation, 2020, vol. 42, issue C

Abstract: This paper explores the effects of an LTV limit on constrained borrowers using comprehensive loan- and borrower-level data from Brazil. LTV limits entail identification challenges because constrained borrowers are no longer directly observed after the policy is implemented. In this paper, partially observed treatment status is addressed by an adjusted difference-in-difference method, focusing on the average treatment effect on the treated (ATT) borrowers (i.e. those that would violate the LTV limit if unconstrained). In the most affected segment, treated individuals cope with the new LTV limit by making higher down payments and also purchasing more affordable houses. They are also less likely to be in arrears, suggesting that LTV limits are effective macroprudential tools by lowering the risk of some originated housing loans.

Keywords: LTV; Loan-to-value ratio; Mortgage; Credit register; Housing loans; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (23)

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Working Paper: Loan-to-value policy and housing finance: effects on constrained borrowers (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:42:y:2020:i:c:s1042957319300464

DOI: 10.1016/j.jfi.2019.100830

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