Raising Household Leverage: Evidence from Co-financed Mortgages

Abstract

We provide evidence on the terms and performance of a mortgage co-financed between banks and a Mexican housing provident fund (HPF). Relative to traditional bank mortgages, we find that borrowers take out larger loans under the co-financing scheme to lower down payments rather than to acquire more expensive properties. Default risk is mitigated by enhancing borrowers' liquidity and the HPF’s secure repayment system. We also find that co-financing reduces income disparities in access to home financing but not to good quality properties. Our findings are relevant for the design of products that raise leverage in settings with pervasive borrowing constraints.

Keywords: Residential Mortgages, Co-Financing, Housing Provident Fund, Household Leverage, Default

JEL Classification: D04, D14, G21, G51, H81, O16