3 ms·
Fundamentally, the problem with loan writers unloading the loans is that it decouples their incentives. You end up with a fundamentally unstable system, where t
by ak217 10y ago
Fundamentally, the problem with loan writers unloading the loans is that it decouples their incentives. You end up with a fundamentally unstable system, where the loan writers are incentivized to further increase the spread between what the loans say and what the collateral or debtor is capable of, while offloading their liability so that it's evenly spread among the entire financial system.
It doesn't matter that it makes loans more accessible (in fact to some degree that's part of the problem); it doesn't matter that it makes the market more efficient when the market is up. The decoupled incentives make the system prone to extremely painful crashes that are unfair to everyone.
- nickff 10y agoI think you are getting to the core of the issue, which is that when the underwriter is decoupled from the result, they must either be regulated or their customers (the real creditors) must have skin in the game. The regulations have been ineffective (so far), and the creditors have always been bailed out; we should not be surprised that creditors are unscrupulous about lending to questionable borrowers.
- josho 10y agoOr you know we could enforce our laws. Many of those loans were fraudulent and outright criminal to grant. The threat of years in jail is a pretty good way to keep people honest.