Spatially Targeted LTV Policies and Collateral Values

45 Pages Posted: 27 Apr 2023 Last revised: 1 Sep 2023

See all articles by Chun-Che Chi

Chun-Che Chi

Institute of Economics, Academia Sinica

Cameron LaPoint

Yale School of Management

Ming-Jen Lin

National Taiwan University - Department of Economics

Date Written: April 8, 2023

Abstract

Many governments regulate household leverage at a national level, even when credit and housing market conditions vary substantially across locations. We explore the efficacy of loan-to-value (LTV) limits targeted towards specific neighborhoods as a macroprudential policy designed to curb local house price growth. We combine administrative data from Taiwan covering the universe of all mortgage loans, personal income tax returns, a public database of geocoded housing transactions, and bank branch balance sheets. Applying a series of matched difference-in-differences and border difference-in-discontinuity designs, we find that leverage limits are effective at reducing local house prices compared to alternative policy instruments such as transfer taxes, with no effects on delinquency rates. In response to a statutory tightening of the maximum LTV ratio to 60% from the standard 80% for mortgages on second homes, house prices decline by 6% in policy catchment areas relative to nearby neighborhoods not subject to LTV restrictions. However, we uncover two kinds of efficiency costs associated with place-based mortgage restrictions: (i) real commuting costs driven by homeowners sorting into neighborhoods where credit is easier to obtain, and (ii) mispricing, or “noise” costs, as banks and prospective homebuyers face incentives to obtain inflated appraisals to avoid the limits.

Keywords: loan-to-value ratio, place-based mortgage restrictions, macroprudential policy, intermediation, collateral misreporting, house prices, border discontinuity, location sorting

JEL Classification: E61, G21, G28, R21, R31, R38

Suggested Citation

Chi, Chun-Che and LaPoint, Cameron and Lin, Ming-Jen, Spatially Targeted LTV Policies and Collateral Values (April 8, 2023). Available at SSRN: https://ssrn.com/abstract=4426887 or http://dx.doi.org/10.2139/ssrn.4426887

Chun-Che Chi

Institute of Economics, Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Cameron LaPoint (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States

HOME PAGE: http://som.yale.edu/faculty/cameron-lapoint

Ming-Jen Lin

National Taiwan University - Department of Economics ( email )

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

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