**Create a public data base on property prices, mortgage interest rates, mortgage lending volumes, and mortgage loan performance.** Confidence increases when investors are aware of price movements and cycles. Regulators and lenders in middle income countries have only recently begun to keep such data. The IMF and World Bank have jointly developed recommended indicators for real estate markets as part of their work on financial stability monitoring. These include separately reporting real estate lending by types of financial institutions, and creating real estate price indexes.<sup>56</sup> Central banks, financial regulators, statistical agencies, and the private sector should collaborate to create real estate information centers that gather and report basic data on real estate markets and financial activity. Such data enables property appraisers to provide more accurate estimates of market value. Thailand created such a center in 2004.<sup>57</sup> Lenders and mortgage insurers in Mexico have reliable data from the beginning of the 2000s, when the public MI product was restructured, and a few mortgage lenders began to securitize their portfolios, but this data reflects a period of rising house prices, similar to the boom experienced in the U.S. in the same period. In Colombia, data exists for mortgages that survived the crisis of 1998 that were securitized, and for loans that have been originated more recently, as the market has rebounded. But these time periods represent separate paradigms in terms of market circumstances, and do not lend themselves easily to sweeping conclusions about default probability or loss given default. In China, mortgages have been made only since the reforms of 1998, in a real estate boom in coastal cities, and loan data has not been consistently gathered across the industry. In many other emerging markets, lending is much less widespread, and no industry-wide data is collected at all.

# **Prudential Regulation of Non-Depository Lenders**

**Ensure that all lenders have clear incentives to mitigate credit risk.** As they grow in importance in any economy, NBFIs should be subject to prudential supervision. The lack of regulation of U.S. non-bank mortgage lenders, off-balance sheet SIVs, and hedge funds led the system to shift capital to them during the subprime boom. As Basel II is implemented, banks will have a greater incentive to lay risk off to third parties. National authorities are now considering how to avoid regulatory arbitrage among different types of financial institutions (IMF, 2008). Supervision of non-bank mortgage lenders could be less intrusive than that of depository institutions. Rules could include less frequent examinations for safe lending practices, and a minimum reserve or capital rule that is linked to a stricter requirement to repurchase poorly underwritten mortgages. For example, such a requirement could extend two years after origination and cover a larger volume of potential repurchases than has been required in the U.S. Lenders could be required to retain a portion of the subordinate bonds issued as part of senior-subordinate structures. Non-bank lenders could be required to realize fee income over a period of time and as a function of the performance of the loans rather than at the time the loan is originated.

> 56 IMF (2006).

> 57 http://www.reic.or.th/home_eng/home/default.asp

36