Not so long ago, the US housing finance system was arguably the best in the world. Consumers had access to products that were not available elsewhere, and the market was able to sustain major economic disruptions with relatively little impact on either the cost or availability of mortgage...

The recent financial crisis was triggered by large and unexpected losses on mortgages and mortgage-related securities. Here we examine model risk arising from innovations in mortgage markets and how those innovations affect asset values. In particular, we examine the effect of parameter...