of enforcing contracts, and the depth of credit information sharing. Housing Loan Penetration is higher in countries with a lower number of procedures for construction permits, stronger creditor rights, and lower costs of contract enforcement. In summary, there is strong evidence for the importance of creditor rights and effective construction permit procedures, but not for other elements of the institutional framework and business environment. These results suggest a strong role for creditor rights, but not for the informational framework. These findings are consistent with Djankov, McLiesh and Shleifer (2007) who show the importance of credit registries for low-income and contractual frameworks for high-income countries and the fact that mortgage markets do not really take on importance until relatively high levels of income. These findings are confirmed when we undertake the different robustness tests mentioned above, except that the number of construction permits does not enter significantly once we limit the sample to middle- and low-income countries.

Table 7 presents regressions of Mortgage Depth and Penetration on indicators of government’s involvement in the mortgage finance system and dummies indicating funding sources of funding for mortgage finance. The index of government involvement is from the IMF’s Global Financial Stability Report 2011 and is based on dummy variables indicating whether there are subsidies for first-time or other home buyers upfront or through savings accounts, subsidies for specific income groups, possible use of pension fund savings for home purchases, government guarantees on home loans, tax deductibility of mortgage interest payments, and the existence of government-owned housing banks. The dummy variables indicating primary and secondary source of funding for mortgage finance are from Hofinet and indicate to which extent the primary (or secondary) source of mortgage finance are (i) retail funding through deposits, (ii) wholesale funding through financial markets, (iii) mortgage bonds, or (iv) other sources. Deposit funding of mortgages is connected with the originate-and-hold model and thus provides strong incentives for lenders to properly screen and monitor, but poses challenges in terms of asset-liability mismatch and funding restrictions. Wholesale funding does not pose such funding restrictions, but can misalign incentives as seen during the recent U.S. sub-prime crisis. Mortgage bond financing, finally, combines market financing with originate-and-hold and has proved a relatively stable financing source. We would expect a positive relationship between government participation in the mortgage market and mortgage market development, though this might not be sustainable, while it is a-priori not clear which funding model might be the most appropriate one for mortgage market development. Funding models might also change with the development of the mortgage market over time.

The results in Table 7 suggest that government involvement in the mortgage market is not significantly associated with cross-country variation in Mortgage Depth or Penetration. These regressions, however, are limited to mostly high-income countries, given data restrictions. Mortgage Depth is higher in countries where the primary funding source is mortgage bonds. We also find some evidence that retail funding is associated with higher Mortgage Depth, although the coefficient estimates turn insignificant once we control for the secondary source of funding. Wholesale funding, on the other hand, is not associated with higher Mortgage Depth or Housing Loan Penetration. Our findings are confirmed when we control for GDP 17