Mortgage Lending: Past vs Present Diagram. Where it went wrong.
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Someone sent me an e-mail with a graph of the difference between past and current mortgage lending. I decided to spruce up the diagram to give you a better idea of how many additional layers have been added to the current mortgage lending process. What you’ll notice is the detachment from the actual real estate asset in the new model. In the old model, banks had a major incentive to make sure you did not default on your loan. In the current scheme of things, independent rating agencies and appraisers supposedly were the buffer to all this yet they of course had no actual money in the game. That is, they were paid by the banks and investment firms to meet their expectations or face being out of a job. Hence the new allegations that are now coming out where appraisers inflated real estate prices at the behest of banks and investment firms essentially had rating agencies over the fire in terms of rating whatever they brought to the table AAA.