Misaligned Incentives and Mortgage Lending in Asia

33 Pages Posted: 22 Oct 2008 Last revised: 4 Sep 2013

See all articles by Richard K. Green

Richard K. Green

University of Southern California - Lusk Center for Real Estate

Roberto S. Mariano

Singapore Management University

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Date Written: September 10, 2007

Abstract

This paper provides a conceptual basis for the price discovery potential for tradable market instruments and specifically the development of mortgage securitization in Asia and the potential dangers of such markets. Nonetheless we argue for the potential importance of securitization in Asia because of its possible role in increasing transparency of the financial sector of Asian economies. We put forth a model explaining how misaligned incentives can lead to bank generated real estate crashes and macroeconomic instability, with or without securitization under certain circumstances. We examine the banking sector's performance in Asia compared to securitized real estate returns, to provide evidence on the contribution of misaligned incentives in the past. We discuss how the addition of liquid MBS could help to inoculate markets from the shocks arising from bank-financed mortgage lending. We conclude with a brief discussion of current MBS markets in Asia.

Keywords: real estate, mortgage securitization, banking, instability, mortgage-backed securities, MBS markets, Asia

Suggested Citation

Green, Richard K. and Mariano, Roberto S. and Pavlov, Andrey D. and Wachter, Susan M., Misaligned Incentives and Mortgage Lending in Asia (September 10, 2007). U of Penn, Inst for Law & Econ Research Paper No. 08-27. Available at SSRN: https://ssrn.com/abstract=1287687 or http://dx.doi.org/10.2139/ssrn.1287687

Richard K. Green

University of Southern California - Lusk Center for Real Estate ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Roberto S. Mariano

Singapore Management University ( email )

50 Stamford Rd.
Singapore 912409, 178899
Singapore

Andrey D. Pavlov (Contact Author)

Simon Fraser University (SFU) - Finance Area ( email )

Burnaby, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
125
Abstract Views
1,167
rank
241,615
PlumX Metrics