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Securitization and Lax Mortgage Lending

By Doug Cornelius

The Chain of Fools is the title of The Economist's Economics Focus column. The article points to the increasing evidence that securitization lead to lax mortgage lending in the United States.The column is based largely on the study by Atif R. Mian and Amir Sufi of the University of Chicago's Business School: The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis.In the end the problem was severing the origination of mortgage loans from their ongoing management and servicing. The originators were motivated to increase the flow of mortgage paper, not necessarily to increase the quality of that mortgage paper. As evidence, you can look at the increase of NINJA loans (No Income, No Job or Assets) on the residential side of mortgage lending and the light covenant loans on the commercial side of mortgage lending...continue to full post

Full post as published by Real Estate Space on February 09, 2008 (boomark / email).