Housing Finance Policy in Emerging Markets 1st Edition by Loic Chiquier, Michael Lea ISBN 0821377507 978-0821377505

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Product details: 

ISBN 10: 0821377507

ISBN 13:  978-0821377505

Author:  Loic Chiquier,  Michael Lea

Housing finance markets have been changing dramatically in both emerging and developed economies. On the one hand, housing finance markets are expanding and represent a powerful engine for economic growth in many emerging economies. However, the unfolding sub-prime mortgage crisis highlights the risks and potential turbulence that this sector can introduce into the financial system when expanding without proper infrastructure and regulation. As housing finance keeps growing in emerging economies to match a rising demand for housing, new risk management approaches, business models, funding tools, and policy instruments can help. Yet many questions remain about the right balance between innovation and regulation, the extent of risks to the financial system, the appropriate role of the state to promote affordable housing, and the effects of the sub-prime crisis. This book provides a guide for policymakers dealing with housing finance in emerging markets. It highlights the prerequisites for an effective housing finance system; it lays out several policy alternatives and models of housing finance; and it explores the role of governments in expanding access to housing finance for lower-income households. There is no “best” model set out in this book. The aim is to provide a developmental roadmap that can be tailored and sequenced to each country’s situation and timing.

Table of contents: 

1 Foreword
2 Acknowledgments
3 Abbreviations
4 Introduction

Introduction
Objectives
Evolution of Housing Finance Systems
Policy Recommendations
Impact and Lessons of the U.S. Subprime Crisis
Housing Finance Is Interrelated with the Broader Economy
Structure of the Book
Summary Conclusions
5 Chapter 1 Housing Finance and the Economy

Developed Economies
Emerging Economies
The Importance of Housing Finance
The Demand for Housing Finance
Macroeconomic Factors
Financial Liberalization
Technological Change
Concerns and Opportunities
The Effect of Mortgage Finance on Savings
The Effect of Mortgage Finance on Investment
Mortgage Finance and Growth
Housing Finance, Business Cycles, and Economic Fragility
Mortgage Finance and the Distribution of Risk
House Prices, Housing Finance, and Economic Activity
Lessons for Emerging Markets
6 Chapter 2 Structure and Evolution of Housing Finance Systems

Mortgage Lending Models
Building Societies/Savings & Loans
Commercial Banks
Contract Saving Schemes
Specialist Mortgage Banks
Combining Different Systems
Secondary Mortgage Markets
Introducing New Lending Models: Mexico and India
Unbundling of Mortgage Value Chain
State-owned Lenders
Conclusions
7 Chapter 3 Mortgage Instruments

Fixed-Rate Mortgages
Adjustable-Rate Mortgages
Indexed Mortgages
Interest-Only Mortgages
Reverse Mortgages
Lessons for Emerging Markets
8 Chapter 4 Primary Mortgage Market Infrastructure

Appraisal
The Importance of Sound Appraisal
Developing an Appraisal Industry
International Standardization of Appraisal Methodology
Appraiser Qualifications, Appraisal Associations, Independence, and Ethics
Quantitative Appraisal Models and Real Estate Data
The Challenges of Establishing an Appraisal Industry in Emerging Markets
Mortgage-Related Insurance Products
Property Insurance
Mortgage Life Insurance
Catastrophic Insurance
Title Insurance
Credit Information Bureaus
The Importance of Credit Information in Mortgage Finance
Credit Bureaus in Developed Markets
Credit Bureaus in Emerging Markets
Membership
Ownership
Management and Development
Data
Consumer Protection
9 Chapter 5 Enforcement of Mortgage Rights

Does Mortgage Collateral Matter?
Differences between Legal Systems
Forms of Mortgage and Mortgage Documentation
Alternative Security Devices
The Land Charge
The Mortgage Certificate
Mortgage Documentation
Secondary Mortgage Markets
Procedural Issues in Mortgage Enforcement
Non-judicial Enforcement
Negotiated versus Auction Sale
Responsibility for Sale
Auction Sale Prices
Creditor’s Right to Acquire the Mortgaged Property
Notice, Cure, Rights of Redemption, and Stays of Execution
Bankruptcy and Other Preferences

Chapter 6 Consumer Information and Protection
6.1 Defining the Consumer
6.2 Developed Markets
6.3 Emerging Markets
6.4 Consumer Protection Objectives
6.5 Information Asymmetry between Lenders and Consumers
6.6 Consumer Heterogeneity
6.7 Transaction Cost Asymmetries during the Going Concern
6.8 Vulnerability of the Consumer to Market Risks
6.9 Protecting the Consumer through the Loan Life Cycle
6.10 Before Borrowing
6.11 The Loan Offer and Closing
6.12 The Ongoing Concern
6.13 The Back End Default
6.14 The Costs of Consumer Protection
6.15 Opportunity Costs of Regulation
6.16 Alternative Implementation Forms Costs
6.17 Enforcement Costs
6.18 Is Consumer Protection a Luxury Good for Emerging Markets
6.19 Emerging Markets Are Part of the Global Consumer Protection Trend
6.20 Appropriate Regulations May Support Financial Sector Development
6.21 Conclusions

Chapter 7 Construction Finance in Emerging Economies
7.1 Real Estate Development Process and Risks
7.2 Financing by Buyers
7.3 Financing by Banks
7.4 Funding from Capital Markets
7.5 Financing of Buyers
7.6 Other Regulatory Aspects

Chapter 8 Risk Management and Regulation
8.1 The Risks of Housing Finance
8.2 Credit Risk
8.3 Other Risks
8.4 Liquidity Risk
8.5 Market Risk
8.6 Agency Risk
8.7 Operational Risk
8.8 Systemic Credit Risk
8.9 Political Risk
8.10 The Role and Tools of Regulation
8.11 International Standards for Reporting and Capital
8.12 Provisions
8.13 Capital Requirements for Primary Lenders
8.14 Basel II Capital Standards and Mortgage Lending
8.15 Capital Requirements Supervisory Standards
8.16 Credit Concentration Risk
8.17 Market and Liquidity Risk
8.18 Mortgage Loan Design
8.19 Other Regulator Actions
8.20 Real Estate Market Information
8.21 Management and Reporting Standards
8.22 Taking Corrective Actions
8.23 Financial Reporting and Disclosures by Primary Lenders
8.24 Regulation of Secondary Mortgage Institutions
8.25 Case Study The US Subprime Crisis
8.26 The Property Boom and Loose Credit Underwriting
8.27 Reduced Reliance on Credit Enhancements
8.28 Risky Loan Design
8.29 Lack of Consumer Information
8.30 Breakdowns in the Behavior of Participants in the Securitization Value Chain
8.31 The Influence of Trends in International Capital Markets
8.32 Reduced Transparency Resulting from Complex Security Structures and Incomplete Information on Exposures
8.33 Regulatory Failures in the United States Contributed to the Growth of Risky Subprime Lending Practices
8.34 The Risks of Subprime Practices and Those of Lending to Moderate and Low-income Households Should Not Be Confused
8.35 The Subprime Crisis Was Avoidable

Chapter 9 Contractual Savings for Housing
9.1 Key Features of a Contractual Savings Scheme for Housing
9.2 General Character
9.3 Basic Structure of a CSH Contract
9.4 Open and Closed CSH Schemes
9.5 Financing Function of CSH
9.6 CSH and Other Housing Finance Products
9.7 Historical Development of CSH Schemes
9.8 Developed Mortgage Markets
9.9 CSH in Emerging Markets
9.10 Managing Risk under a CSH Scheme
9.11 Risk Profile of CSH Contracts
9.12 Demand Fluctuations
9.13 Inflation Risk
9.14 Contract Design Flaws
9.15 Misallocation of Excess Liquidity
9.16 CSHs as a Policy Choice in Emerging Markets
9.17 Mobilization of Savings
9.18 Lack of Long-Term Funding
9.19 Credit Risk Mitigation and Financial Stability
9.20 Stimulation of Modernization and Small Transactions Lending Market
9.21 Institutional Requirements for CSH Lenders
9.22 Regulation of CSH Schemes
9.23 Subsidies for CSHs
9.24 CSH Subsidies in Emerging Markets
9.25 Guiding Principles
9.26 Conclusions for Emerging Markets

Chapter 10 State Housing Banks
10.1 A Brief Overview of State Housing Banks
10.2 Definition and Classification
10.3 Types of State Housing Banks
10.4 The Rationale for Creating a State Housing Bank
10.5 The Model Failed in Many Countries
10.6 State Housing Bank Failings
10.7 Weak Corporate Governance
10.8 Lax Management of Credit Risk
10.9 Assets/Liability Mismatches
10.10 Misallocation of Subsidies and Rent-Seeking Policies
10.11 SHB as Obstacles to the Growth of Housing Finance Markets?
10.12 Available Safeguards and Alternative Options
10.13 Good Governance
10.14 Autonomy of Funding
10.15 Alignment of Corporate Interest with Market Development
10.16 Examples of SHBs Meeting These Conditions
10.17 Policy Alternatives
10.18 Regulatory or Contractual Credit Orientation
10.19 Second-Tier Institutions
10.20 Public-Private Partnerships
10.21 “Double Bottom Line” Social and Commercial Private-Sector Lenders
10.22 Exit Strategies
10.23 Enable a “Corporatization Process” to Create a Commercially Run Institution
10.24 Partial or Full Privatization
10.25 Conversion of an SHB into a Second-Tier Refinance Institution
10.26 State Support to Private Sector
10.27 Conclusion A Decision Tree for Policy Makers

Chapter 11 Housing Provident Funds
11.1 Description of HPF
11.2 Subsidies
11.3 Governance
11.4 Development of an HPF
11.5 International Experience
11.6 China
11.7 Singapore
11.8 Mexico
11.9 Brazil
11.10 Philippines
11.11 Nigeria National Housing Fund

Chapter 12 Mortgage Securities in Emerging Markets
12.1 Why Are Mortgage Securities Important?
12.2 What Are the Prerequisites for Issuing Mortgage Securities?
12.3 What Has Been the Experience in Emerging Markets?
12.4 Covered Bond Issuers
12.5 MBS Issuers
12.6 Liquidity Facilities
12.7 Safety and Soundness Regulation in Mortgage Capital Markets
12.8 Mortgage-Backed Securities
12.9 Mortgage Bonds
12.10 Reporting for Secondary Market Instruments
12.11 The Role of the Credit Rating Agencies
12.12 Lessons Learned
12.13 The Basics
12.14 Market Demand
12.15 Simplicity
12.16 Role of Government

Chapter 13 Mortgage Insurance
13.1 Definition and Unique Features of MI
13.2 Purposes of MI
13.3 Countries that Have MI Today
13.4 Prerequisite Conditions for MI Success
13.5 Key Program Characteristics
13.6 Individual Loan Coverage
13.7 Premium Rates
13.8 Eligible Loans
13.9 Underwriting Method
13.10 Meeting Social Objectives
13.11 Special MI Products for Mortgage-Backed Securities (MBS)/Structured Finance
13.12 Mortgage Pool Insurance
13.13 Timely Payment and Cash-Flow Protection
13.14 Credit Risk Management
13.15 Regulatory Issues
13.16 Bank Risk-Based Capital Rules
13.17 Consumer Issues
13.18 Information Technology
13.19 Public-Private MI Partnerships
13.20 Public MI Provider Supported by Private Reinsurer(s)
13.21 Government Backup for Private MI Provider
13.22 Government-Sponsored Enterprises (GSEs), Privately Insured
13.23 Public-Private MI Competition
13.24 Lessons Learned
13.25 Conclusion

Chapter 14 Residential Rental Housing Finance
14.1 Introduction
14.2 The Rental Sector in Housing Policy
14.3 The Importance of Enabling a Vibrant Rental Sector
14.4 Imbalance between Rental and Homeownership
14.5 Rental Housing as an Investment
14.6 The Challenges of Developing Rental Housing in Emerging Economies
14.7 Rights of Landlords and Tenants
14.8 Rent Control
14.9 Unfavorable Tax Regimes
14.10 Social Rental Housing
14.11 Some Market Financing Models for Rental Housing
14.12 All-Equity Based
14.13 Real Estate Investment Trusts (REIT)
14.14 Bank-Supplied Credit for Residential Rental Investment
14.15 Capital Market Financing
14.16 Credit Enhancements and Insurance Products
14.17 Country Examples
14.18 The Low-Income Housing Tax Credit (LIHTC) in the United States
14.19 Brazil The Residential Leasing Program (PAR)
14.20 Poland The TBS Experience
14.21 Conclusions

Chapter 15 Housing Microfinance
15.1 The Rise of Housing Microfinance
15.2 An Overview of Housing Microfinance
15.3 Potential Size of HMF Markets The Cases of Peru and Guatemala
15.4 Financial Performance of HMF
15.5 Other Opportunities for Housing Microfinance
15.6 Limited Potential for Linking HMF and Housing Subsidies
15.7 Linkages between Commercial Banks and Housing Microfinance
15.8 The Limitations of Housing Microfinance
15.9 Market Size
15.10 Pricing and Access
15.11 Refinancing and Other Microfinance Limitations
15.12 Potential to Contribute to Entrenchment of Informality
15.13 Conclusion

Chapter 16 Housing Finance Subsidies
16.1 Where to Start? Linking Housing Problems to Subsidy Policy
16.2 Analyzing the Causes of the Housing Problems
16.3 Subsidies and Other Types of Government Intervention
16.4 Why Subsidize Housing?
16.5 Subsidies and the Expansion of Housing Finance Systems
16.6 Housing Finance Sector Problems, Causes, and Subsidies
16.7 Housing Finance Subsidies, Market Structure, and Vested Interests
16.8 Housing Finance Subsidies to Alleviate Funding Constraints
16.9 Subsidies to Address Lending Risks and High Transaction Costs
16.10 Problems with Subsidizing a Housing Finance System
16.11 Subsidies for the Financing of Rental Housing
16.12 The Rental Market
16.13 Rental Sector Regulations, Taxation, and Subsidies
16.14 Subsidies to the Rental Sector
16.15 Project Finance for Ownership Housing
16.16 Public-Private Partnerships for the Provision of Affordable Rental Housing
16.17 Making Rental Subsidies Work
16.18 Housing Finance Subsidies to Households
16.19 Household Problems and Subsidies
16.20 Lower-Middle Income Households
16.21 Low-Income Households Subsidies When Housing Supply Markets Do Not Work

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