Incapacity to Pay or Moral Hazard? Public Mortgage Rates Delinquency in Chile

High delinquency rate of publicly provided mortgages in social housing programs are often interpreted to be due to moral hazard. In this paper we show that the typically used parametric approaches give misleading results due to overlooked confounding and selection biases. We show that by using the more appropriate impact or treatment non-parametric approach the problem of high delinquency rate in publicly provided mortgages is due to the incapacity to pay and not due to moral hazard. The results caution against public policies to encourage private mortgage providers to move down market, and suggest eliminating mortgages and correspondingly increasing the grant component of the programs.