1. Ignorance is not bliss: asymmetric information in the residential mortgage market
- Author
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Atkinson, Glen W., Paschall, Stephen P., Bonnefant, Brian P., and Steinmann, Frederick A.
- Subjects
Mortgage banks -- Economic aspects -- Forecasts and trends ,Mortgages -- Economic aspects -- Forecasts and trends ,Dwellings -- Finance ,Housing -- Finance ,Mortgages ,Company financing ,Market trend/market analysis ,Economics ,History - Abstract
Law and the economy co-evolve. John R. Commons demonstrated this co-evolution in the transformation of the legal definition of property from physical property to intangible property or the exchange-value of anything realized through transactions. Reasonable transactions required informed participation by parties. The 'fetish of liquidity' in the secondary mortgage market fostered by federal laws, favoring mortgage-backed securities, converted the transaction into intangible property. The debtor was no longer the customer of the bank but an obligor to nameless investors uninterested in his/her community. The secondary mortgage market deviated from Commons's standard for reasonable transactions because investors and home buyers were ignorant of the rights, duties, liberties, and exposures of the transactions. We examine the economic outcomes produced by these legal changes in Nevada, and the endogenous forces ignited by these practices in terms of foreclosures and failing communities. Keywords: asymmetric information, deeds of trust, intangible property, law and economics, reasonable transactions JEL Classification Codes: B52, D82, G14, K11, K40, The evolutionary path of the economy as affected by law has been 'driven by artificial selection of changing customs that ignited sets of endogenous forces' (Atkinson 2010, 290). The evolutionary [...]
- Published
- 2014
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