## Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania

_IMF Working Papers, October 27, 2023_

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## Bibliographic details
- Authors: Mantas Dirma, Jaunius Karmelavičius
- Published: October 27, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400256578.001

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### Research objective and approach
- Objective: Assess the adequacy of borrower-based measures’ (BBMs) parametrization in Lithuania and evaluate whether the BBM package contained excessive mortgage growth and mortgage credit risk during the low-interest-rate period.
- Methodology: Built a novel lifetime expected credit loss framework grounded on actual loan-level default and household income data.

### Key findings
- The BBM package effectively contains mortgage credit risk.
- Housing loans are more resilient to stress than in the preregulatory era.
- Calibration exercise results:
  - (1) In the low-rate environment, income-based measures could have been tighter.
  - (2) Borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment.

### Subject areas and keywords
- Subject: Credit risk; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Housing prices; Loans; Macroprudential policy instruments; Mortgages; Prices
- Keywords: Baltics; BBM package; borrower-based measures; calibration exercise; Credit risk; Europe; Global; Housing prices; lifetime expected loss; Lithuania's housing market; Loans; LTV; macroprudential policy; Macroprudential policy instruments; modeling mortgage risk; mortgage credit risk; Mortgages; probability of default

### Practical implications and policy recommendations
- The BBM package increased resilience of housing loans to stress compared with the preregulatory era.
- Policymakers should consider tighter income-based borrower constraints in prolonged low-rate environments.
- Higher down payment requirements are justified for secondary mortgages to mitigate elevated risk.

*IMF Working Papers — Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania (Working Paper No. 2023/227), October 27, 2023.*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/10/27/micro-assessment-of-macroprudential-borrower-based-measures-in-lithuania-540987_