Mortgage insurance and housing finance in emerging economies

Lending is considered to be the utilisation of resources mobilised and management of associated risk. Existing literature on housing finance in the developed world identifies the high Loan-To-Value (LTV) approach for funding housing purchase as posing a significant risk to mortgage lenders. In response, developed countries have adopted mortgage insurance as the key vehicle for credit risk mitigation. In the emerging economies however, the often adopted formal housing finance mechanism is depository - based, which lacks the mortgage insurance option. This paper provides a comprehensive review of the literature on formal mortgage tools in both developed and emerging economies and concludes that it would appear to be more beneficial for emerging economies to reform their mortgage institutions and incorporate mortgage insurance as a measure to effectively manage housing credit risk. The result of this investigation will form part of an ongoing study on housing finance in emerging economies.