The agency problem in the mortgage markets was due to the ________ business model.

Question

Quizplus · Accepted Answer

The agency problem in the mortgage markets arose due to the originate-to-distribute business model where lenders would originate loans and then sell them off to other financial institutions, often bundled together as mortgage-backed securities. This led to a misalignment of incentives between the original lender and the end investor, as the original lender had little to no incentive to ensure the quality of the loans since they were not holding onto them for the long term. This, in turn, contributed to the subprime mortgage crisis of 2007-2008.

The Agency Problem in the Mortgage Markets Was Due to the ________