I agree with you that all of these are likely to occur without a meaningful appraisal process.
I only question whether these are sufficient to outweigh the temptation for short term, easy profits. There is a fundamentally different paradigm between a lender who gets paid to originate loans with OPM and a lender who gets paid based on the rate of return on his/her own capital.
Yes, some banks do keep mortgage loans on their books. However, I can’t imagine that originating a loan with them is much more difficult than originating a loan that is to be securitized, as postulated. From a consumer’s perspective, they are equivalent. To be competitive, the banks who keep loans on their books have to adopt comparably shoddy lending practices.
As for changes in interest rate, people who buy MBS’s “know” that the rate of default is “X,” based on historical records. This is the same way that people who invest in stocks “know” that stocks return 10% per year on average. It takes time for the information regarding higher rates of default/lack of meaningful appraisals to work its way into people’s consciousness.
