180 Years’ Evolution of the US Mortgage Banking System: Lessons for Emerging Mortgage Markets

This study is structured around two objectives: surveying the 180 years’ evolution of the US mortgage intermediation system (MIS); and, extracting the lessons to be learned by emerging mortgage markets. To that end, I first discuss three pillars of a well-functioning MIS as a conceptual underpinning - intermediation efficiency, affordability enhancement, and risk management. The historical survey proceeds based on four reasonably distinct time periods – (1) the era of exploration (pre-1930s or pre-Great Depression era), (2) the era of institutionalization (1930s to 1960s), (3) the era of market-making (1970s and 1980s), and (4) the era of expansion and efficiency gain (1990s to Present). Based on the survey done, the lessons for other countries are organized under five topics: developing conforming mortgage product and market; extending the service to nonconforming segments; managing default and prepayment risks; managing systemic risk; and, developing an efficient intermediation process. The concluding remarks in the final section comprise the issue of right sequencing: that is, through what steps an MIS in a given country can be evolved toward a more market-based one that can deliver a higher degree of consumer welfare.