factors ; for example, numerous studies have found that borrowers are more likely to default when house prices have fallen and incomes decline. at the household level, such " double triggers " may induce defaults because of cash flow constraints or because continuing to make payments on a mortgage whose balance significantly exceeds the value of the house is more difficult to justify when the family budget is strained. see shane sherlund ( forthcoming ), " the past, present, and future of subprime mortgages ", finance and economics discussion series ( washington : board of governors of the federal reserve system ) ; kristopher gerardi, christopher l. foote, and paul s. willen ( 2008 ), " negative equity and foreclosure : theory and evidence ", public policy discussion papers 08 - 3 ( boston : federal reserve bank of boston, if one accepts the view that principal write - downs may be needed in cases of badly underwater mortgages, then strengthening the h4h program is a promising strategy, as i have noted. beyond the steps already taken by the h4h board, the congress might consider making the terms of h4h loans more attractive by reducing the up - front insurance premium paid by the lender, currently set in law at 3 percent of the principal value, as well as the annual premium paid by the borrower, currently set at 1 - 1 / 2 percent. the congress might also grant the fha the flexibility to tailor these premiums to individual risk characteristics rather than forcing the fha to charge the same premium to all borrowers. in addition, consideration might be given to reducing the interest rate that borrowers would pay under the h4h program. at present, this rate is expected to be quite high, roughly 8 percent, in part because it is tied to the demand for the relatively illiquid securities issued by ginnie mae to fund the program. to bring down this rate, the treasury could exercise its authority to purchase these securities, with the congress providing the appropriate increase in the debt ceiling to accommodate those purchases. alternatively, the congress could decide to subsidize the rate. a second proposal, put forward by the fdic, focuses on improving the affordability of monthly payments. under the fdic plan, servicers would restructure delinquent mortgages using a streamlined process, modeled on the indymac protocol, and would aim to reduce monthly payments to 31 percent of the borrower's income. as an

more resilient. with regard to the more cyclical component of the recent developments, without underplaying the need for structural reform in some cases, one could even draw a more constructive conclusion of current developments, namely that depreciating exchange rates, and moderation in growth patterns may actually be testimony to how responsive these economies have become, and can adjust to changes in the underlying fundamentals. furthermore, global investors may at present be relatively under - weight in emerging - market securities, strengthening the case for out - performance of the latter over the medium term. private surveys of us and eu pension funds do suggest that their allocation to emergingmarket debt has remained stable and relatively low, as a share of total assets under management, in recent years, even as the share of emerging market bonds in world market capitalisation continued to grow. in particular, global investor allocations to local - currency bonds of emerging market economies remain low, in part because of historical reasons of liquidity which nonetheless fade over time as emerging economies increasingly expand the size and maturity of their local bond market. that said, not all emerging countries retain sustainably stronger fundamentals than their developed world counterparts, and growing divergences within the broad emerging market bloc, coupled with the likelihood of less abundant liquidity over the next few years, suggest that differentiation between respective emerging markets could increasingly become the norm in coming years. whereas the immediate post - recession years had seen a strong cross - correlation between the performances of different emerging market assets, as they shared common drivers in the form of liquidity injections and interest rate expectations in the world ’ s major economies, such correlations have already started to wane in 2013. country differentiation gradually began to replace the proverbial “ risk on, risk off ” trading patterns of the earlier period. countries with relatively weaker growth, inflation and external account metrics saw their currency, bond and equity markets under - perform those with more solid fundamentals. therefore, it may not be helpful to lump together countries and call them “ the bis central bankers ’ speeches fragile five ”, when underlying dynamics in these countries could be quite different, even if they present similarities when one looks at budget deficits and current account deficits. 5. south african assets under this new paradigm this allows me to conclude with a few words on our domestic situation. domestic financial markets have faced significant challenges since the second quarter of this year. the rand has extended a depreciating trend that began in the latter half