Imperfect information and the housing finance crisis: A descriptive overview

We now know that the subprime market presented consumers with sub-optimal choices that they took, and that it contained many market imperfections. The interesting question, then, is what were the sources of imperfections. In the spirit of providing an introduction for this special issue of the Journal of Housing Economics, this paper g discusses possible sources of market failure. Market imperfections in the Mortgage Finance System are classic: asymmetric information and agency problems. But we argue that the asymmetries and agency problems were not one-sided, but rather involved a multiple set of problems that need to be addressed.