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180 Years’ Evolution of the US Mortgage Banking System: Lessons for Emerging Mortgage Markets

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  • Man Cho

    () (The KDI School, Seoul, Korea)

Abstract

This study is structured around two objectives: surveying the 180 years’ evolution of the US mortgage intermediation system (MIS); and, extracting the lessons to be learned by emerging mortgage markets. To that end, I first discuss three pillars of a well-functioning MIS as a conceptual underpinning - intermediation efficiency, affordability enhancement, and risk management. The historical survey proceeds based on four reasonably distinct time periods – (1) the era of exploration (pre-1930s or pre-Great Depression era), (2) the era of institutionalization (1930s to 1960s), (3) the era of market-making (1970s and 1980s), and (4) the era of expansion and efficiency gain (1990s to Present). Based on the survey done, the lessons for other countries are organized under five topics: developing conforming mortgage product and market; extending the service to nonconforming segments; managing default and prepayment risks; managing systemic risk; and, developing an efficient intermediation process. The concluding remarks in the final section comprise the issue of right sequencing: that is, through what steps an MIS in a given country can be evolved toward a more market-based one that can deliver a higher degree of consumer welfare.

Suggested Citation

  • Man Cho, 2007. "180 Years’ Evolution of the US Mortgage Banking System: Lessons for Emerging Mortgage Markets," International Real Estate Review, Asian Real Estate Society, vol. 10(1), pages 171-212.
  • Handle: RePEc:ire:issued:v:10:n:01:2007:p:171-212
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    File URL: http://cbeweb-1.fullerton.edu/finance/irer/papers/past/vol10n1_pdf/Cho%20(171-212).pdf
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    References listed on IDEAS

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    1. Gordy, Michael B., 2000. "A comparative anatomy of credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 119-149, January.
    2. Alan Greenspan & James E. Kennedy, 2005. "Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences," Finance and Economics Discussion Series 2005-41, Board of Governors of the Federal Reserve System (U.S.).
    3. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    4. John Y. Campbell & João F. Cocco, 2003. "Household Risk Management and Optimal Mortgage Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1449-1494.
    5. Rosenthal, Stuart S. & Duca, John V. & Gabriel, Stuart A., 1991. "Credit rationing and the demand for owner-occupied housing," Journal of Urban Economics, Elsevier, vol. 30(1), pages 48-63, July.
    6. James VanderHoff, 1996. "Adjustable and Fixed Rate Mortgage Termination, Option Values and Local Market Conditions: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(3), pages 379-406.
    7. Black, Deborah G & Garbade, Kenneth D & Silber, William L, 1981. "The Impact of the GNMA Pass-through Program on FHA Mortgage Costs," Journal of Finance, American Finance Association, vol. 36(2), pages 457-469, May.
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    Cited by:

    1. Man Cho, 2009. "Managing Mortgage Credit Risk: What Went Wrong With the Subprime and Alt-A Markets?," International Real Estate Review, Asian Real Estate Society, vol. 12(3), pages 295-324.

    More about this item

    Keywords

    mortgage banking and intermediation; housing affordability; risk management;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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