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Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market

Author

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  • Besley, Timothy J.
  • Meads, Neil
  • Surico, Paolo

Abstract

This paper uses a unique data set on more than 600,000 mortgage contracts to estimate a credit supply function which allows for risk-heterogeneity. Non-linearity is modeled using quantile regressions. We propose an instrumental variable approach in which changes in the tax treatment of housing transactions are used as an instrument for loan demand. The results are suggestive of considerable risk heterogeneity with riskier borrowers penalized more for borrowing more.

Suggested Citation

  • Besley, Timothy J. & Meads, Neil & Surico, Paolo, 2010. "Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market," CEPR Discussion Papers 7633, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7633
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    References listed on IDEAS

    as
    1. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Bracke, Philippe & Hilber, Christian A.L. & Silva, Olmo, 2018. "Mortgage debt and entrepreneurship," Journal of Urban Economics, Elsevier, vol. 103(C), pages 52-66.
    2. Ozlem Akin & José Montalvo & Jaume García Villar & José-Luis Peydró & Josep Raya, 2014. "The real estate and credit bubble: evidence from Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 223-243, August.
    3. Eckley, Peter & Benetton, Matteo & Latsi, Georgia & Garbarino, Nicola & Kirwin, Liam, 2017. "Specialisation in mortgage risk under Basel II," Bank of England working papers 639, Bank of England.
    4. Cloyne, James & Ferreira, Clodomiro & Surico, Paolo, 2015. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," CEPR Discussion Papers 11023, C.E.P.R. Discussion Papers.
    5. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers 0103, Spatial Economics Research Centre, LSE.

    More about this item

    Keywords

    credit supply; heterogeneous effects; instrumental variable.; mortgage individual data; risk pricing;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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