A/67/286 23. With the growing understanding that mortgage finance remains unaffordable for the lower- (and often middle-) income groups in both developed and developing countries, during the past two decades new mortgage products were designed specifically for borrowers with low income and/or a poor credit history, who could not be eligible for regular mortgage finance. The development of this new mortgage finance “market segment” increased enormously during the 1990s and even more so during the 2000s. 36 24. Credit was increasingly awarded to households that, in normal circumstances, would not be eligible for loans, generating what is known as “sub-prime” loans. Although these lending policies were intended to enable access to housing finance for low-income households previously excluded from the mortgage markets, they are still in effect extremely discriminatory with respect to the poor. Mortgage lenders classify loan applicants according to the risks that they pose to both lenders and investors. Credit scoring facilitates risk-based pricing by allowing lenders to charge higher interest rates for borrowers with low scores (bad risks) and lower interest rates for borrowers with high scores (good risks). Lenders became more willing to issue credit at a relatively high price to higher-risk borrowers. In the United States, a typical sub-prime borrower would pay $5,222 more during the first four years of a $166,000 mortgage than would a similar borrower with a normal mortgage (see A/HRC/10/7). 25. Predatory lending has also impacted disproportionally on the most vulnerable. Predatory lending is a form of price discrimination that targets the same groups that were once excluded from mortgage markets, offering them loans that are more expensive than their risk profile would warrant, overpriced mortgage insurance, and abusive or unnecessary provisions including balloon payments, large prepayment penalties and underwriting that ignores a borrower’s ability to repay. 37 26. Once overtly excluded from accessing mortgage loans, the poor became the target of these more subtle discriminatory mechanisms. High- interest loans led to ever-increasing household indebtedness and economic insecurity and poor households were forced to reduce expenditure on other basic needs in order to meet their housing debt. 27. The adverse effects of housing credit growth on affordability have also been visible at the macroeconomic scale. Wider access to mortgage loans resulted in higher house prices. In Spain, between 1995 and 2005 housing prices rose 105 per cent, a result of cheap debt and access to global capital for credit (A/HRC/7/16/Add.2, para. 44). A recent IMF analysis confirms the strong positive relationship between house price movements and household credit growth. On average, a 10 per cent increase in household credit is associated with an increase in housing prices of about 6 per cent. 38 28. Increasing dependence on mortgage credit, private institutions and connection to broader developments in the global capital markets has overexposed national housing systems to the turbulence of global finance, raising levels of debt and concentrating risks among individual households. Countries that adopted a strongly __________________ 36 37 38 12-45918 World Bank, Thirty Years of World Bank Shelter Lending: What Have We Learned?, Robert M. Buckley and Jerry Kalarickal, eds. (Washington, D.C., 2006). Aalbers, p. 159. IMF, p. 134. 9