Over the last decade, the U.S. housing market has experienced an unprecedented increase in housing values and credit availability, particularly in the area known as “subprime” lending for buyers with less-than-perfect credit. In the last two years, according to the comptroller of the currency, 20 percent of all mortgage originations have been subprime. In 2006, 40 percent of all interest-only and payment-option adjustable rate mortgages were also subprime. Furthermore, many of these subprime loans have been packaged into collateralized debt instruments and sold to investors, often with banks and hedge funds providing enhancements regarding loan defaults.

What are the trends in the mortgage-credit sector, and what will their implications be for the U.S. economy? What will happen to credit markets, particularly to securities originating from subprime loans, and to the U.S. economy if even moderately pessimistic predictions about the real-estate sector come to pass? Did the “democratization of credit” over the past decade go too far? What are the credit and market-risk implications—to banks, hedge funds, and investors—of a sharp correction in residential real-estate values in the United States?

These and other questions will be discussed by Nouriel Roubini, Desmond Lachman, Thomas Zimmerman, and R. Christopher Whalen. Alex J. Pollock will moderate.

This event is cosponsored by AEI and the Professional Risk Managers' International Association.