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Misaligned Incentives and Mortgage Lending in Asia

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Roberto S. Mariano () (School of Economics, Singapore Management University)

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Abstract

This paper provides a conceptual basis for the price discovery potential for tradable market instruments and specifically the development of mortgage securitization in Asia and the potential dangers of such markets. Nonetheless we argue for the potential importance of securitization in Asia because of its possible role in increasing transparency of the financial sector of Asian economies. We put forth a model explaining how misaligned incentives can lead to bank generated real estate crashes and macroeconomic instability, with or without securitization under certain circumstances. We examine the banking sector’s performance in Asia compared to securitized real estate returns, to provide evidence on the contribution of misaligned incentives in the past. We discuss how the addition of liquid MBS could help to inoculate markets from the shocks arising from bank-financed mortgage lending. We conclude with a brief discussion of current MBS markets in Asia.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 07-2009.

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Length: 32 pages
Date of creation: Nov 2008
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Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:07-2009

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2003-2), pages 299-362. [Downloadable!]
  2. Franklin Allen & Douglas Gale, 1998. "Optimal Financial Crises," Journal of Finance, American Finance Association, vol. 53(4), pages 1245-1284, 08. [Downloadable!] (restricted)
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  3. Franklin Allen, 2001. "Presidential Address: Do Financial Institutions Matter?," Journal of Finance, American Finance Association, vol. 56(4), pages 1165-1175, 08. [Downloadable!] (restricted)
  4. Saito, Hitoshi, 2003. "The US real estate bubble?: A comparison to Japan," Japan and the World Economy, Elsevier, vol. 15(3), pages 365-371, August. [Downloadable!] (restricted)
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This page was last updated on 2009-11-27.

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