Loan officers were incentivized to approve risky mortgages from "summary" of The Big Short by Michael Lewis
In the years leading up to the financial crisis, a dangerous dynamic was at play in the mortgage industry. Loan officers, the individuals responsible for approving mortgage applications, were operating within a system that rewarded risk-taking behavior. Rather than being motivated to ensure the financial stability of borrowers, these loan officers were incentivized to push through risky mortgages that had a high likelihood of default. The driving force behind this incentive structure was the securitization process. When loans were bundled together and sold off to investors, the loan officers who originated those mortgages received a commission based on the volume of loans they approved. This meant that the more mortgages they approved, the more money they stood to make. As a result, there was little incentive for loan officers to thoroughly vet applicants or consider ...
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