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

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  • de Araujo, Douglas Kiarelly Godoy
  • Barroso, Joao Barata Ribeiro Blanco
  • Gonzalez, Rodrigo Barbone

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.

Suggested Citation

  • de Araujo, Douglas Kiarelly Godoy & Barroso, Joao Barata Ribeiro Blanco & Gonzalez, Rodrigo Barbone, 2020. "Loan-to-value policy and housing finance: Effects on constrained borrowers," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:jfinin:v:42:y:2020:i:c:s1042957319300464
    DOI: 10.1016/j.jfi.2019.100830
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    More about this item

    Keywords

    LTV; Loan-to-value ratio; Mortgage; Credit register; Housing loans; Macroprudential policy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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