The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.
A)principal-agent
B)debt deflation
C)democratization of credit
D)collateralized debt

Question

Quizplus · Accepted Answer

The principal-agent problem arises in the originate-to-distribute business model because the mortgage broker, acting as the agent, has little incentive to ensure that the borrower, the principal, is a good credit risk. The mortgage broker's commission is based on originating as many loans as possible, so they may not thoroughly evaluate the borrower's ability to repay the loan. This creates an asymmetry of information and a potential conflict of interest between the mortgage broker and borrower.

The Originate-To-Distribute Business Model Has a Serious ________ Problem Since