The Unassuming Economist

A new IMF paper by Luis I. Jácome and Srobona Mitra looks at how loan-to-value (LTV) and debt-service-to-income (DTI) limits work in practice (Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania). The authors find that “(…) rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.”