We build a model of the aggregate housing and rental markets in which house prices and rents are determined endogenously. Households can choose their housing tenure status (renters, homeowners, or landlords) and the size of their homes depending on their age, income and wealth. We use our model to study the impact of changes in credit conditions on house prices, rents and household welfare. We analyse the introduction of policies that limited loan-to-value (LTV) and loan-to-income (LTI) ratios of newly originated mortgages in Ireland in 2015 and find that, consistent with empirical evidence, they mitigate house price growth but increase rents. Homeownership rates drop, and young and middle-income households are negatively affected by the reform. An unexpected permanent rise in real interest rates has similar effects – by making mortgages more expensive and alternative investments more attractive for landlords, it increases rents relative to house prices. 

In some European countries, mortgage delinquency rates are much higher than foreclosure rates.  The stock of delinquent mortgages peaked at 9% of GDP in the Eurozone periphery and the average length of a delinquency spell was over 10 months. This fact has been largely neglected in the macro-finance literature. This paper provides a framework for understanding why high levels of persistent mortgage delinquency can emerge as an equilibrium outcome during a housing market crisis. Banks tolerate delinquency because the gain to foreclosing is less than the option value of continuing with the delinquent loan. By nesting a straightforward game between debt-distressed households and banks within a quantitative macro-housing model, the option to enter delinquency is shown to significantly attenuate (by roughtly half) the consumption drop during a crisis. Importantly, I show that the ability of households to gain insurance through delinquency is significantly impacted by the degree of recourse available to banks upon foreclosure. The model features realistic lifecycle dynamics, tenure choice between renting and owning, endogenous liquidity in the housing market and defaultable, long-term debt. 

We study the problem of the regulation of bank holdings of the sovereign debt of their own governments in an environment where both government and bank default are possible. Costs of default are endogenously generated through damage to the banking sector. Due to bank limited liability, domestic banks are able to generate higher expected returns on holding government debt than international investors. In turn, governments are able to sustain high levels of debt when the cost to the banking sector are high. Together, these effects generate high `home bias' in banks' sovereign debt exposure.

Consumer loans are key for consumption smoothing. But what if individuals who need them the most find it harder to access these loans? We examine this question empirically and quantitatively, using Brazilian credit registry and matched employer-employee data. Low-income individuals face higher interest rates, even after controlling for several risk factors and characteristics. Our model includes life-cycle dynamics, different credit types, occupations, and income shocks with endogenous default. According to the calibrated model, reforms reducing loan interest rate spreads could significantly benefit individuals, especially young and poor informal workers. The pro-competition 2013 Loan Portability reform increased welfare by 0.2\% of annual consumption.