When Local Housing Becomes an Electronic Instrument: The Global Circulation of Mortgages — A Research Note

Abstract

The securitizing of mortgages has brought with it a new channel for extracting household income, bundling it up with other types of debt and selling it off to financial investors. Extending this concept to modest‐income households opens up a global potential market comprising billions of households. The first part of this article examines how mortgages for modest‐income households could jump circuits and function as investment instruments in the secondary financial circuit, thereby making the creditworthiness of mortgage holders irrelevant as a source of profit, to the disadvantage of modest‐income households. The second part examines the potential for this mechanism in major regions of the world. The critical indicator used is the low ratios of residential mortgage capital to GDP, a ratio far lower than in the US and other developed economies. The final section examines the costs of this innovation — for cities, for various countries and for banks.

top