Synopsis

By 2007, it was common for a home financing transaction to involve a borrower, a mortgage broker, a loan originator, a guarantor, a securitizer, an investment bank, a credit rating agency, and multiple investors. Each participant added complexity and introduced new risks of error. Trillions of dollars of wealth depended on the assumption that U.S. housing values would continue appreciating.

Discussion Questions

1. How did mortgage securitization change lending officers’ mindsets?
2. How did the “issuer pays” business model create an inherent conflict of interest for credit rating agencies such as Moody’s and Standard & Poor’s?
3. Describe the conditions in 2006 that created the potential for economic collapse.