Imperfect Information and the Housing Finance Crisis

Edward Golding, Richard Green, Douglas McManus

UCC08-6: This paper has two parts. First, we look at the various agents involved in the mortgage transaction—including borrowers, brokers, originators, rating agencies and investors—and their incentives. These incentives may help reveal how the subprime crisis became so large, and inform the second part of the paper, which addresses the appropriate policy responses going forward. We will focus in particular on a few, relatively simple reforms that would give agents incentives to avoid behavior that has led to the current problems…