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The sub prime crisis : implications for emerging markets

  • Gwinner, William B.
  • Sanders, Anthony
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    This paper discusses some of the key characteristics of the U.S. subprime mortgage boom and bust, contrasts them with characteristics of emerging mortgage markets, and makes recommendations for emerging market policy makers. The crisis has raised questions in the minds of many as to the wisdom of extending mortgage lending to low and moderate income households. It is important to note, however,that prior to the growth of subprime lending in the 1990s, U.S. mortgage markets already reached low and moderate-income households without taking large risks or suffering large losses. In contrast, in most emerging markets, mortgage finance is a luxury good, restricted to upper income households. As policy makers in emerging market seek to move lenders down market, they should adopt policies that include a variety of financing methods and should allow for rental or purchase as a function of the financial capacity of the household. Securitization remains a useful tool when developed in the context of well-aligned incentives and oversight. It is possible to extend mortgage lending down market without repeating the mistakes of the subprime boom and bust.

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    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/09/24/000158349_20080924134919/Rendered/PDF/WPS4726.pdf
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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4726.

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    Date of creation: 01 Sep 2008
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    Handle: RePEc:wbk:wbrwps:4726
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    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.
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    10. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
    11. Christopher L. Foote & Kristopher Gerardi & Lorenz Goette & Paul S. Willen, 2008. "Subprime facts: what (we think) we know about the subprime crisis and what we don’t," Public Policy Discussion Paper 08-2, Federal Reserve Bank of Boston.
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