Regulation of Housing Finance

The housing finance system involves many households and firms, as well as industries which lie beyond the boundaries of the housing sector. Firm failure can generate disaster for affected customers, depositors and investors, as well as have harmful consequences for the rest of the economy. Regulation of financial institutions, including insurance companies and pension funds, is therefore imperative to prevent or mitigate the risk of firm failure. Government mandated deposit and mortgage insurance also necessitate additional regulatory oversight to keep lending institutions from taking on excessive risks. The regulation of financial products, institutions and markets is a major and highly complex topic in itself and has become a policy issue of global concern since the financial crisis of 2008. This chapter focuses on those aspects of the regulation of housing finance that have an impact on affordability and investments: the mortgage instrument and its origination, contractual savings housing schemes, as well as alternative methods of funding housing via mortgage securitization, covered bonds, liquidity facilities, real estate investment trusts and institutional funds. Macro-prudential regulation of the housing market will be considered in Chapter 10.