The US subprime mortgage has not only had an affect in the USA but also has spread across the globe. Thus, the direct risk exposure has spread well beyond the USA to Asian and European market. It has become essential to adapt a dynamic risk management tool to contain credit risk from a global viewpoint. Since April 2007, global risks have amplified and underlying scenarios have deteriorated. Economy will experience instability as economic parameters trend towards more sustainable levels linked with the economic recovery. Global solutions are needed for setting right the global nature of the crisis identified in the US financial system.
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In emerging economies, mortgage securities can perform in a number of valuable functions. Efforts have been initiated to develop mortgage securities to obtain long-run residential funding.
It is probable to extend the mortgage lending market without recurring the errors of the subprime boom and bust in the USA. However, some pivotal limitations enumerated below exist:
- Taxation, regulation and legal structure
- Infrastructure available for information and data technology transfer
- Resources and tools for predictive analysis
- Adequate support for liquidity
- Reporting under standardisation form
- Internal controls and risk management
- Loan programs, products and distribution channels
- Capacity of the investors to invest
- Availability of adequate lenders and the underwriting system
Federal Reserve should be given the ample power and authority to supervise the activities of non-bank mortgage financial providers. An independent market regulator should be established to regulate and supervise subprime mortgage activities in the USA so that the mistakes made in the recent past can be avoided altogether in the future.