Question by Roman: Discuss factors that have contributed to the increase in the number of foreclosures?

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Answer by ?
The development of a pass through mortgage market. In the 70’s and 80’s banks started developing mortgage backed securities or MBSs an MBS is a big pile of mortgages wrapped up together to become a security similar to a bond but with a few differences. By packaging and selling MBSs banks do not have to hold entire mortgages on their balance sheets after they sell them to investors, the mortgage payments are passed through the bank to the investors. Because the banks don’t hold them they don’t care as much who gets a mortgage, some guy who really shouldn’t have gotten a million dollar mortgage might be more likely to get one in a pass through market. Many loans are also created by loan originators and mortgage brokers who line up deals and pass them to banks to be packaged. These guys don’t ever hold the mortgage so they care even less who gets a mortgage or not. Because the risk of writing a mortgage loan to someone has been spread out and passed along through securitization and sale a greater number of “bad” loans have been written in the recent past.

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