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Abstract
The Policy Research Working Paper Series disseminates the fndings o work in progress to encourage the exchange o ideas about development issues. An objective o the series is to get the fndings out quickly, even i the presentations are less than ully polished. The papers carry the names o the authors and should be cited accordingly. The fndings, interpretations, and conclusions expressed in this paper are entirely those o the authors. They do not necessarily represent the views o the International Bank or Reconstruction and Development/World Bank and its afliated organizations, or those o the Executive Directors o the World Bank or the governments they represent.
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This paper discusses some o the key characteristics o the U.S. subprime mortgage boom and bust, contraststhem with characteristics o emerging mortgage markets,and makes recommendations or emerging market policy makers. The crisis has raised questions in the minds o many as to the wisdom o extending mortgage lendingto low and moderate income households. It is importantto note, however, that prior to the growth o subprimelending in the 1990s, U.S. mortgage markets already reached low and moderate-income households withouttaking large risks or suering large losses. In contrast,This paper—a product o the Global Capital Markets Non-Bank Financial Institutions Division, Financial and PrivateSector Development Vice Presidency—is part o a larger eort in the department to promote stable and accessible housingfnance systems in developing countries. Policy Research Working Papers are also posted on the Web at http://econ. worldbank.org. The author may be contacted at wgwinner@worldbank.org.in most emerging markets, mortgage fnance is a luxury good, restricted to upper income households. As policy makers in emerging market seek to move lenders downmarket, they should adopt policies that include a variety o fnancing methods and should allow or rental orpurchase as a unction o the fnancial capacity o thehousehold. Securitization remains a useul tool whendeveloped in the context o well-aligned incentives andoversight. It is possible to extend mortgage lending downmarket without repeating the mistakes o the subprimeboom and bust.
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