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Money for Nothing and Checks for Free

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Author Info

  • Paul S. Mills
  • John Kiff

Abstract

After a number of warning signs, the U.S. "subprime mortgage crisis" became a headline issue in February 2007. Notwithstanding the bankruptcy of numerous mortgage companies, historically high delinquencies and foreclosures, and a significant tightening in subprime lending standards, the impact thus far on core U.S. financial institutions has been limited. This paper reviews the history and structure of the subprime market. The results suggest that new origination and funding technology appear to have made the financial system more stable at the expense of undermining the effectiveness of consumer protection regulation. Potential solutions to the management of this trade-off are then explored.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/188.

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Length: 18
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/188

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Related research

Keywords: Consumer credit; Financial institutions; Financial systems; Bankruptcy; mortgage; mortgages; securitization; capital markets; foreclosure; homeownership; foreclosures; mortgage market; mortgage lending; mortgage loans; home equity; hedge funds; mortgage backed securities; mortgage-backed securities; mortgage finance; foreclosure process; credit rating agencies; home ownership; mortgage securities; underlying mortgage; mortgage bankers; subprime mortgage lending; mortgage companies; underlying mortgages; mortgage lenders; mortgage markets; credit rating; mortgage credit; home equity loans; home price; subsidiaries; risk mortgages; credit rationing; home loans; mortgage loan; discrimination in mortgage; housing markets; nontraditional mortgages; risk mortgage; debt service; bond ratings; moral hazard; underwriting standards; current account deficit; housing finance agency; mortgage payment; mortgage payments; residential mortgages; mortgage insurers; housing affordability; mortgage insurance; housing policy; housing finance; mortgage originators; mortgage pools; mortgage financing; mortgage-related securities;

This paper has been announced in the following NEP Reports:

References

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  1. Vladimir Klyuev & Paul Mills, 2007. "Is Housing Wealth an “ATM”? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 539-561, July.
  2. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
  3. Mark Doms & Meryl Motika, 2006. "The rise in homeownership," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov3.
  4. Chari, V V & Jagannathan, Ravi, 1989. " Adverse Selection in a Model of Real Estate Lending," Journal of Finance, American Finance Association, vol. 44(2), pages 499-508, June.
  5. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 281-310.
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