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

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 find evidence that regulation has important effects on mortgage rates and delinquencies in both the time-series and the cross-section.

Keywords: delinquencies, emerging markets, India, mortgage finance, regulation

JEL Classification: G21, G28, R21, R31