While many of us are still coming to terms with the ongoing mortgage crisis, others are looking for answers as to how things got so bad, so quickly.
The results of Grant Thornton LLP’s 16th Bank Executive Survey, conducted with Bank Director magazine, found that 54 percent of bankers felt poor underwriting was the leading culprit.
That was followed closely by the political push to increase homeownership and a lack of oversight in the mortgage industry.
While I do agree these issues certainly played their part, the originate-to-distribute model still seems to be the underlying problem.
In recent years, the originate-and-hold mentality quickly shifted to the originate-to-distribute model, which rapidly led to poor underwriting and lax oversight.
The promise of home price appreciation kept the system running smoothly, allowing underwriters to make bad decisions, as pressured by their superiors who received big incentives to ensure the party rolled on.
Take a look at the theory in action, as explained by Celent, a research and consulting firm.
Back to that survey for a moment; 18 percent of respondents felt interest rates kept too low for too long was a problem, which doesn’t bode well for a recovery considering that seems to be our solution at the moment.
The survey was based on completed questionnaires from 339 CEOs and senior bank officers.