The lenders are in it for the revenue/profit growth. If they did it the old fashioned way, the capital would be secure but the business would be stagnant and no one will get rich. Now that lenders can off-load the risk, their have even more incentives to focus on the the origination, servicing and securitizing business that brings in big bucks.
It’s not going to get better. It’ll get worse until consumers can no longer afford any more debt.
The mortgage is just an extension of the credit card. It used to be that only the best customers could get credit cards. But now, it’s much more profitable to give credit cards to everyone. So what if a big portion default? You can charge more fees to make up for it.
Think about it. If you make $10 per loan and make 10 prime loans, you have $100. You make 100 subprime loans at $15 each so now you have $1500. 25 might default 2 or 3 years down the road, but by that time it’ll be someone else’s problem.
