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Effects of Easing LTV·DTI Regulations on the Debt Structure and Credit Risk of Borrowers

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  • Kim, Meeroo
  • Oh, Yoon Hae

Abstract

With CB data in South Korea, this study examines whether the credit risk of borrowers changes when the regulation on bank mortgage supply is relaxed. We analyze the effect of deregulation on LTV and DTI limits in the Seoul-metropolitan area in August 2014 with a differencein-difference approach. We find that the probability of delinquency is lower in the Seoul metropolitan area after the deregulation than in other urban areas. The effect is noticeable among low-income and low-credit borrowers. We also find that borrowers change their debt structure to reduce the interest costs utilizing their improved access to bank mortgages. The findings suggest the necessity to consider the burden of the high interest costs of unsecured loans for debtors with low incomes and low credit ratings in designing housing finance regulations.

Suggested Citation

  • Kim, Meeroo & Oh, Yoon Hae, 2021. "Effects of Easing LTV·DTI Regulations on the Debt Structure and Credit Risk of Borrowers," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 43(3), pages 1-32.
    • Handle: RePEc:zbw:kdijep:243309
    DOI: 10.23895/kdijep.2021.43.3.1
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    References listed on IDEAS

    as
    1. Ms. Deniz O Igan & Mr. Heedon Kang, 2011. "Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea," IMF Working Papers 2011/297, International Monetary Fund.
    2. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
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    More about this item

    Keywords

    LTV; DTI; Mortgage Loan; Credit Risk;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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