Title: Characteristics and Implications of Rising Household Debt: Pre-And Post-Deregulation Of Mortgage Loans
Abstract: Although the deregulation of the real estate finance market has not diminished households’ financial stability to any significant degree, a shock such as a rise in the interest rate may weigh down heavily on households in the short-run. Despite the rapid increase in the aggregate household debt, the rise was mainly led by high-income households with relatively stable income and response assets. As such, households’ financial stability has not been significantly affected. However, due to the recent rapid rise in interest rates, households’ financial stability may turn negative in the short-run as a result of unexpected shocks. Preemptive measures are needed to enhance marginal households’ financial stability in preparation for internal and external shocks as mortgage regulations are strengthened to curb the increase in household loans. Aggregate household debt has hovered far above income growth since the easing of regulations on DTI and LTV ratios. As such, the regulations should be reversed to previous levels and collective loans should be placed under much stricter supervision to curb the increase in household loans. At the same time, efforts are also needed to prevent additional increases in the share of households with extremely high DTI ratios or rapidly increasing LTV ratio.
Publication Year: 2016
Publication Date: 2016-11-24
Language: en
Type: article
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