Abstract
This paper analyzes the mortgage borrowing process from a Russian state-owned supplier of residential housing mortgages concentrating on the estimation of demand function with heterogeneous borrowers’ preferences. Analysis takes into account the underwriting process and the choice of contract terms of all loans originated from 2008 to 2012. Our dataset contains demographic and financial characteristics for all applications, loan terms and the performance information for all issued loans by one regional bank which operates government mortgage programs.We use a multistep semiparametric approach to estimate the determinants of bank and borrower choice controlling for possible sample selection and endogeneity of contract terms. The main contribution to the literature is modeling choice of contract terms as interdependent by structural system of simultaneous equations with heterogeneous marginal effects.We found that demand of low-income households who are unable to afford improving of housing conditions by other instruments than government mortgage is less elastic according to the change both in interest rate and maturity.
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