Protecting the consumer of housing finance products has become an increasingly important and debated subject in both developed and emerging markets. One of the special characteristics of housing finance urging intervention is the creation of large financial exposures for the consumer and a burden for him or her to make sizeable payments over extended periods, coupled with the risk of losing his or her primary residence posted as collateral. In addition to this “credit” dimension, housing finance contracts also contain many financial options. The specific goals and approaches of consumer protection are more contentious, however, because of inherent conflicts with other developmental goals. This is already noticeable in the traditional definition of the goal of consumer protection because it ensures a “fair deal” for consumers while allowing lenders to reach a sufficient return on their invested capital. Seen from a broader financial-sector development perspective, consumer protection often means solving conflicts between market efficiency on the one hand, and market stability and social protection on the other. For instance, the right of a consumer to repay a fixed-rate loan unconditionally conflicts with the goal to offer the lowest-cost fixed-rate loan, because of reinvestment risk for the lender. On the other hand, the ability to afford by young households through credit products with low initial payments may conflict with stability goals when the same product entails a possible future payment shock. It is clear that finding the optimum here is a difficult task.

These economic points have been blurred in the understandable thrust to deregulate an overregulated mortgage industry in developed markets of the 1980s and the subsequent polarized policy debate. Much of that debate can be traced to the traumatic experiences of high inflation and is increasingly obsolete. Today, the practical difficulties in determining an appropriate level of consumer protection should have priority. These arise because of the idiosyncrasies of mortgage lending, especially funding and risk management mechanisms.