After the Storm: Asymmetrical Information, Game Theory, and an Examination of the 'Minnesota Model' for National Regulation of Mortgage Brokers and Tomorrow's Predatory Lenders

Posted: 11 Aug 2011 Last revised: 25 Mar 2012

Mark Ireland

Second Judicial District-State of Minnesota

Date Written: December 19, 2009

Abstract

There is a general consensus that the root cause of the most recent turmoil in the domestic and global markets is due to a failure in our regulatory system. Yet, Congress has not supported comprehensive regulation related to the day-to-day activities of mortgage brokers and their relationship with consumers. This article identifies the three regulatory and legislative failures related to mortgage lending, and then examines these failures through the economic concepts of asymmetrical information and game theory. Specifically, how the regulatory failures resulted in mortgage brokers and lenders that were not acting in the best interest of homeowners or the future purchasers of securitized loans. Finally, this Article recommends adopting the “Minnesota Model” as a national framework for regulating mortgage lending. The Minnesota Model was an anti-predatory lending law passed in Minnesota in 2007.

Keywords: predatory lending, subprime lending, mortgage, mortgage brokers, asymmetrical information, gamet theory, securitization, regulation

JEL Classification: A11, A13, C70, C71, C78, D80, D82, G21, G28, K00, K20, K42

Suggested Citation

Ireland, Mark, After the Storm: Asymmetrical Information, Game Theory, and an Examination of the 'Minnesota Model' for National Regulation of Mortgage Brokers and Tomorrow's Predatory Lenders (December 19, 2009). William Mitchell Law Review, Vol. 36, No. 1, 2009. Available at SSRN: https://ssrn.com/abstract=1525868

Mark Richard Ireland (Contact Author)

Second Judicial District-State of Minnesota ( email )

15 West Kellogg Blvd
Saint Paul, MN 55102
United States

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