An IMF report has linked government intervention in housing finance with property price swings.
Chapter 3 of the IMF ‘Global Financial Stability Report’ which is entitled ‘Housing Finance and Financial Stability-Back to Basics?‘ points out the importance of the housing sector to a country’s economy. It also says that a fast increase in mortgage credit is strongly linked to strong house price rises.
The report also says that government involvement in housing finance such as moves to bolster ‘affordable housing’ just amplifies the house price increases and then ensures that the resulting crash is deeper and longer.
Products to be avoided says the report are the ‘Risky and complex mortgage products, such as foreign currency mortgages, or foreign-currency indexed mortgage rates … ‘, the risks of which cannot normally be hedged by householders.
It also points the finger at the use of high loan to value (LTV) mortgage products as another lever that lifts house prices.
The report wants:
* Stricter underwriting and supervision of mortgage finance in order to limit the risks.
* A more calibrated intervention by government in house financing with a reduction in direct government provision of finance.
* An improvement in the alignment of incentives between the loan originator and investors where such things as securitisation are concerned.
The report is also looking ahead and has put out some advice to emerging economies that should help them set up systems before a housing bubble starts forming, basically develop ‘ … solid regulation, supervision and legal structures to underpin mortgage financing … ‘.
The report acknowledges the central role of Fannie Mae and Freddie Mac in the US house finance system, but says that they agree with proposals to slowly wind them down so making government intervention in the US housing market more transparent.
There you have it then, good old fashioned banking practice is what the IMF wants. Good rules, solid institutions, sensible lending and get the government’s day to day meddling finger out and let the markets work properly.
Source: http://www.economicvoice.com
Chapter 3 of the IMF ‘Global Financial Stability Report’ which is entitled ‘Housing Finance and Financial Stability-Back to Basics?‘ points out the importance of the housing sector to a country’s economy. It also says that a fast increase in mortgage credit is strongly linked to strong house price rises.
The report also says that government involvement in housing finance such as moves to bolster ‘affordable housing’ just amplifies the house price increases and then ensures that the resulting crash is deeper and longer.
Products to be avoided says the report are the ‘Risky and complex mortgage products, such as foreign currency mortgages, or foreign-currency indexed mortgage rates … ‘, the risks of which cannot normally be hedged by householders.
It also points the finger at the use of high loan to value (LTV) mortgage products as another lever that lifts house prices.
The report wants:
* Stricter underwriting and supervision of mortgage finance in order to limit the risks.
* A more calibrated intervention by government in house financing with a reduction in direct government provision of finance.
* An improvement in the alignment of incentives between the loan originator and investors where such things as securitisation are concerned.
The report is also looking ahead and has put out some advice to emerging economies that should help them set up systems before a housing bubble starts forming, basically develop ‘ … solid regulation, supervision and legal structures to underpin mortgage financing … ‘.
The report acknowledges the central role of Fannie Mae and Freddie Mac in the US house finance system, but says that they agree with proposals to slowly wind them down so making government intervention in the US housing market more transparent.
There you have it then, good old fashioned banking practice is what the IMF wants. Good rules, solid institutions, sensible lending and get the government’s day to day meddling finger out and let the markets work properly.
Source: http://www.economicvoice.com
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