Spring 2009, Vol. 34, No. 1

Abstract: The U.S. economy experienced a unique period of real estate mortgage debt growth from 2000 through 2007. Income property investors became caught up in and benefited from it, as did commercial banks, MBS investors and other financial intermediaries. The result was the financing of a great amount of speculation risk in the debt markets. This article identifies and quantifies the amount of speculation risk that exists in the mortgage markets, and suggests a methodology to identify it and serve as a basis to amend Basel II regulations to build financial stability over a three-year period.