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http://ssrn.com/abstract=1970288
 
 

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The Dodd-Frank Act and Housing Finance: Can It Restore Private Risk Capital to the Securitization Market?


Adam J. Levitin


Georgetown University Law Center

Andrey D. Pavlov


Simon Fraser University (SFU) - Finance Area

Susan M. Wachter


University of Pennsylvania - Wharton School, Department of Real Estate

December 15, 2011

Yale Journal on Regulation, Forthcoming
U of Penn, Inst for Law & Econ Research Paper No. 11-35
Georgetown Law and Economics Research Paper No. 11-32

Abstract:     
Private risk capital has virtually disappeared from the U.S. housing finance market since the market’s collapse in 2008. This Article argues that private risk capital is unlikely to return on any scale until the informational problems in housing finance are resolved so that investors can accurately gauge and price the risks they assume.

The Dodd-Frank Act represents a first step in reforming the U.S. housing finance. It takes a multi-layered approach, regulating both loan origination and securitization. Dodd-Frank’s reforms, however, fail to adequately address the opacity of credit risk information in mortgage markets and thus are insufficient for the restoration of private risk capital.

The Article argues that Dodd-Frank reforms like “skin-in-the-game” credit risk retention fail to solve the informational problems in the housing finance market, as they merely replace one informational opacity with another. Instead, the Article argues, it is necessary to institute structural changes in the housing finance market, particularly the standardization of mortgage securitization, that force the production of information necessary for accurate risk-pricing.

Number of Pages in PDF File: 27

Keywords: Real estate, mortgages, financial regulation, reform, Dodd-Frank Act, mortgage-backed securities, lending models, credit risk information, securitized assets, information shrouding, underpricing, standardization, information asymmetry, risk pricing

JEL Classification: G21, K22, K23, L15, L50, R31

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Date posted: December 10, 2011 ; Last revised: May 15, 2012

Suggested Citation

Levitin, Adam J. and Pavlov, Andrey D. and Wachter, Susan M., The Dodd-Frank Act and Housing Finance: Can It Restore Private Risk Capital to the Securitization Market? (December 15, 2011). Yale Journal on Regulation, Forthcoming; U of Penn, Inst for Law & Econ Research Paper No. 11-35; Georgetown Law and Economics Research Paper No. 11-32. Available at SSRN: http://ssrn.com/abstract=1970288 or http://dx.doi.org/10.2139/ssrn.1970288

Contact Information

Adam J. Levitin
Georgetown University Law Center ( email )
600 New Jersey Avenue, NW
Washington, DC 20001
United States
Andrey D. Pavlov
Simon Fraser University (SFU) - Finance Area ( email )
Burnaby, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)
Susan M. Wachter (Contact Author)
University of Pennsylvania - Wharton School, Department of Real Estate ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

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