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Money for Nothing and Checks for Free; Recent Developments in U.S. Subprime Mortgage Markets

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  • 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.

Suggested Citation

  • Paul S. Mills & John Kiff, 2007. "Money for Nothing and Checks for Free; Recent Developments in U.S. Subprime Mortgage Markets," IMF Working Papers 07/188, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/188
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    References listed on IDEAS

    as
    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. John M. Quigley, 2006. "Federal credit and insurance programs: housing," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 281-310.
    3. 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.
    4. Mark Doms & Meryl Motika, 2006. "The rise in homeownership," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov3.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial institutions; Financial systems; Consumer credit; Bankruptcy; Capital markets; United States; Securitization; structured finance; mortgage-backed securities; housing market; mortgage; mortgages; foreclosure;

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