The recent financial crisis exposed a number of weaknesses in the housing finance sector in the United States (.). The resulting problems can be sourced to incentives guiding decisions in the funding and loan management chains, to incentives driving households’ repayment and default decisions under the personal bankruptcy framework, and to incentives for loan servicers and investors to choose foreclosure over loan modification. At the lending node, incentives for conducting satisfactory collateral valuation and a sound assessment of borrower repayment capacity and willingness weakened following the take-off in securitization of non-conforming mortgages during the last decade. By end-2007, residential.
