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Housing finance,post sub-prime

Housing finance,post sub-prime. Presentation at NHB – APUHF –APMCHUD Conference 12 April 2013, New Delhi M ythili Bhusnurmath , Consulting Editor, Economic Times. Responsible borrowing &lending. Three tenets:

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Housing finance,post sub-prime

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  1. Housing finance,post sub-prime Presentation at NHB – APUHF –APMCHUD Conference 12 April 2013, New Delhi MythiliBhusnurmath, Consulting Editor, Economic Times

  2. Responsible borrowing &lending Three tenets: • Responsible borrowing & lending are two sides of the same coin • Neither is possible unless you have a stable macro-economic environment • Third, while the first tenet seems to have been learnt somewhat, on the second, we still have a long way to go: eg repeated bouts of quantitative easing

  3. Valuable learnings: for policy makers & financial sector players • Black swans are not a figment of the imagination; tail events do happen and then can cause untold havoc. • Financial crises are inevitable in free market economies • Human beings cannot be reduced to equations; days of rocket science are over • Economics is a social science NOT a physical science : There is no pat thumb rule for bubbles

  4. Lessons for policy makers Markets are poor judges of impending crises; they often ignore warning signals • Macro-economic stability is a public good & onus rests on policy makers • Policy makers are part of the problem • Regulators should get rid of their inferiority complex vis-à-vis players; re-naming a product doesn’t make it new

  5. More Lessons for policy makers • Build in checks & balances before not after • Recognise need for players to have skin in the game • Ensure healthy loan-to-value ratios; risk weights take into account macro economic fundamentals such as asset-price inflation & exposure limits are dynamic • Inclusive housing cannot be at the cost of responsible lending

  6. Learnings for players • Banks are about trust; it takes years to build reputations ; only an instant to destroy them • Old world skills of knowing borrower must be re-learnt, documents can never be a substitute   • Sounds almost Biblical but there is always a come uppance for the unethical.

  7. Recent Developments: India • Renewed emphasis on macro-prudential aspects & lately consumer protection • Basle III? • Mortgage backed securities with adequate safeguards • Strict guidelines for Mortgage Guarantee Cos.; 1st IMGC • Fresh impetus to CIBIL

  8. Final Note Better safe than sorry, especially in poor, emerging markets : so when in doubt err on the side of caution cos • The future ain’t what it used to be Yogi Berra Thank You

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