America’s Mortgage Market Is Still Broken
Ten years after the 2008 crisis, crucial flaws need fixing.
Regulators have done a lot to reform the financial system since the 2008 crisis, but they still haven’t fixed the market where the trouble started: U.S. mortgages. It’s an omission they need to put right before the next crisis hits.
Looking back, it’s easy to see what made U.S. housing finance so vulnerable. Loosely regulated companies, financed with flighty short-term debt, did much of the riskiest lending. Loan-servicing companies, which processed payments and managed relations with borrowers, lacked the incentives
and resources needed to handle delinquencies. Private-label mortgages (which aren’t guaranteed by the government) were packaged into securities with extremely poor mechanisms for deciding who — investors, packagers or lenders — would take responsibility for bad or fraudulent loans…