The Public Interest in Consumer and Mortgage Credit Markets

34 Pages Posted: 1 Apr 2010  

Eric S. Belsky

Harvard University

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate

Date Written: March 26, 2010

Abstract

This paper examines mortgage credit markets and the need for government intervention to protect and advance the public interest. We identify as rationales for the public interest: positive and negative externalities, the promotion of equal access, and information asymmetry and principal agent problems. We point to the role of market conduct and structure, as well as information asymmetry and principal agent problems, as prominent sources for the US mortgage debacle. While it is beyond the scope of this paper to outline a reform program, this paper points, in the aftermath of the crisis, to a need for a framework to address information and principal agent issues in the conduct and structure of mortgage markets. As a new framework for mortgage markets is developed, attention needs to be placed on the role that information on loan quality and pricing plays for borrowers’ and investors’ appropriate pricing and allocation of capital.

Keywords: Banking and Finance, Law and Economics, Credit Market Regulation, Externalities, Equal Access to Credit, Asymmetric Information, Principle-Agent Problems, Market Structure, Securitization, Mortgage Credit Crunch, Loan Quality and Pricing Information

JEL Classification: D4, G14, G21, K23, L19

Suggested Citation

Belsky, Eric S. and Wachter, Susan M., The Public Interest in Consumer and Mortgage Credit Markets (March 26, 2010). University of Pennsylvania Institute for Law & Economic Research Paper No. 10-05. Available at SSRN: https://ssrn.com/abstract=1582947

Eric S. Belsky

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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