Levitin & Wachter on the U.S. Mortgage Crisis

Information Failure and the U.S. Mortgage Crisis, by Adam J. Levitin, Georgetown University Law Center, and Susan M. Wachter, University of Pennsylvania - The Wharton School - Real Estate Department, was posted on SSRN.  Here is the abstract:

This paper argues that during the housing bubble, housing finance markets failed to price risk correctly because of information failure caused by the complexity and heterogeneity of private-label mortgage-backed securities and structured finance products. Addressing the informational problems with mortgage securitization is critical not just for avoiding future housing bubbles but for rebuilding American housing finance. The continued availability of the long-term fixed-rate mortgage, which has been the bedrock of American homeownership since the Depression, depends on the continued viability of securitization. The paper proposes that mortgage securitization and origination be standardized as a way of reducing complexity and heterogeneity in order to rebuild a sustainable, stable housing finance market based around the long-term fixed-rate mortgage.