You are correct. If the originators were mandated to keep a certain portion on their books (the potential losses on that portion being higher than the origination fees), then that would seem to work, and that’s why I said it had to be their own money.
The question would be…how do we determine whether or not it’s the originator’s (executive’s and employees of the origination company) personal money, or money they got from “investors”? If the money loaned on the retained portion comes from investors, but the origination fees go to the originator (executives and employees — with little of that money going back to the actual investors), then they will again be gambling with other people’s money, and will have no incentive to process good loans.
