Harvard Law School has published an article on Legal and Economic Issues in Subprime Litigation by Jennifer E. Bethel, Allen Ferrell and Gang Hu which explores the economic and legal causes and consequences of recent difficulties in the US subprime mortgage market.

The paper discusses:

• the process by which loans to homeowners are securitized and discusses the role of various participants in the mortgage securitization market,
• the causes and consequences of the current subprime lending difficulties,
• reasons why market participants may have underestimated risks related to subprime lending,
• the legal issues facing market  participants (in USA). 

The paper is based on data rather than anecdotes and concludes that litigation will either:

• identify that there were weak links in the chain of participants that originate, appraise, and service collateral, and underwrite, manage, insure, rate, and sell securities; or
• highlight where the market may have underestimated certain risks or failed to anticipate particular circumstances, rather than the actions of any particular market participant.