Greed Has Run Amok In Mortgage Industry

by kferaday | June 19, 2008 at 10:21 am

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Anthony Downs, a senior fellow at the Brookings institution wrote this piece for the National Real Estate Investor. Given the impact that the subprime crisis has had on the American and global economies, the new president should make this one of his first priorities. As Downs points out he'll have alot of resistance from the banks and their lobbiests so lets hope that we get a lobby resistant president.

Financial firms are strongly resisting any attempts to impose greater regulation on their activities, according to various media accounts. By taking this position, the finance industry gives the impression that its members do not live on Planet Earth. Despite the allegiance of most Americans to a free market economy, the vast majority believes that unregulated behavior in the mortgage business was extremely harmful to the nation and should not continue.

In an atmosphere where the greed of mortgage brokers — and conduit lenders in particular — went unregulated, many were emboldened to exploit unsophisticated and unqualified borrowers. At the height of the economic boom, brokers frequently pressed residential borrowers who were eligible for prime mortgage loans to take out subprime loans that came attached with higher interest rates, which improved the brokers' profits.