We employ loan-level data on over a million loans disbursed in India between 1995 and 2010 to understand how fast-changing regulation impacted mortgage lending and risk. Our methodology offers an alternative to regression discontinuity analysis that applies even when regulations create no discontinuities in the cross-section. We use cross-sectional differences in the time-series variation of delinquency rates, conditional on initial interest rates, to detect the effects of regulations favoring smaller loans. We also nd that a change in the classification of non-performing assets reduced both delinquency probabilities and losses given delinquency.

Amore common approach to this question is to compare mortgage systems across countries. Casual observation reveals striking cross-country differences. A recent survey by the International Monetary Fund (IMF 2011) shows that among developed countries, homeownership rates range from 43% in Germany to about 80% in southern European countries. The level of mortgage debt in relation to GDP varies from 22% in Italy to above 100% in Denmark and the Netherlands. The terms of mortgage instruments are overwhelmingly adjusted abler ate in southern Europe, and fixed-rate in the United States. Mortgages are funded using a wide variety of mechanisms, including deposit-financed lending, mortgage-backed securities, and covered bonds. Government involvement in mortgage markets also varies across countries, and it is likely that this explains at least some of the cross-country variation in housing finance. However, it is hard to disentangle regulatory effects from other factors that may affect household mortgage choice across countries, including historical experiences with interest rates and in volatility, which can have long-lasting effects because consumers can be slow to adopt new financial instruments.