in housing markets ; for example, the financial policy 2 / 8 bis central bankers'speeches committee of the bank of england has the authority to tighten ltv or dti limits when threats to financial stability emerge from the u. k. housing market. stricter ltv or dti limits find some measure of success. one study conducted across 119 countries from 2000 to 2013 suggests that lower ltv limits lead to slower credit growth. 16 in addition, evidence from a range of studies suggests that decreases in the ltv ratio lead to a slowing of the rate of house price appreciation. 17 however, some other research suggests that the effectiveness of ltv limits is not significant or somewhat temporary. 18 other macroprudential policies focus on lenders. first and foremost, tightening bank capital regulation enhances loss - absorbing capacity, strengthening financial system resilience. in addition, bank capital requirements for mortgages that increase when house prices rise may be used to lean against mortgage credit growth and house price appreciation. 19 these policies are intended to make bank mortgage lending more expensive, leading borrowers to reduce their demand for credit, which tends to push house prices down. estimates of the effects of such changes vary widely : after consideration of a range of estimates from the literature, an increase of 50 percentage points in the risk weights on mortgages would result in a house price decrease from as low as 0. 6 percent to as high as 4. 0 percent. 20 these policies are more effective if borrowers are fairly sensitive to a rise in interest rates and if migration of intermediation outside the banking sector to nonbanks is limited. of course, regulatory reforms and in some countries, macroprudential policies are still being implemented, and analysis is currently under way to monitor the effects. so far, research suggests that macroprudential tightening is associated with slower bank credit growth, slower housing credit growth, and less house price appreciation. borrower, lender, and securitizationfocused macroprudential policies are likely all useful in strengthening financial stability. loan modification in a crisis even though macroprudential policies reduce the incidence and severity of housing related crises, they may still occur. when house prices drop, households with mortgages may find themselves underwater, with the amount of their loan in excess of their home ’ s current price. as atif mian and amir sufi have pointed out, this deterioration in household balance sheets can lead to a substantial drop in consumption and employment.

##isis, u. s. agency mortgage - backed securities ( mbs ) were viewed by investors as having an implicit government guarantee, despite the gses ’ representations to the contrary. because of the perceived guarantee, investors did not fully internalize the consequence of defaults, and so risk was mispriced in the agency mbs market. this mispricing can be notable, and is attributable not only to the improved liquidity, but also to implicit government guarantees. 9 taken together, the government guarantee and resulting lower mortgage rates likely boosted both mortgage credit extended and the rise in house prices in the run - up to the crisis. another factor boosting credit availability and house price appreciation before the crisis was extensive securitization. 10 in the united states, securitization through both public and private entities weakened the housing finance system by contributing to lax lending standards, rendering the mid - 2000 house price bust more severe. 11 although the causes are somewhat obscure, it does seem that securitization weakened the link between the mortgage loan and the lender, resulting in risks that were not sufficiently calculated or internalized by institutions along the intermediation chain. for example, even without government involvement, in spain, securitization grew rapidly in the early 2000s and accounted for about 45 percent of mortgage loans in 2007. 12 observers suggest that spain ’ s broad securitization practices led to lax lending standards and financial instability. 13 yet, as the irish experience suggests, housing finance systems are vulnerable even if they do not rely on securitization. although securitization in ireland amounted to only about 10 percent of outstanding mortgages in 2007, lax lending standards and light regulatory oversight contributed to the housing boom and bust in ireland. 14 macroprudential policies to summarize, murky government guarantees, lax lending terms, and securitization were some of the key factors that made the housing crisis so severe. since then, to damp the house pricecredit cycle that can lead to a housing crisis, countries worldwide have worked to create or expand existing macroprudential policies that would, in principle, limit credit growth and the rate of house price appreciation. 15 most macroprudential policies focus on borrowers. loan - to - value ( ltv ) and debt - to - income ( dti ) ratio limits aim to prevent borrowers from taking on excessive debt. the limits can also be adjusted in response to conditions