The mortgage industry faced significant moral hazard due to the practice of lenders selling their loans to investors as mortgage bonds. This setup allowed lenders to profit without having to consider the long-term performance of the loans they originated. According to Jacobs, this environment encouraged unethical behavior, as the focus shifted to quick profits instead of responsible lending practices.

The situation created a breeding ground for unscrupulous individuals, as it incentivized selling risky products that could lead to financial disaster without personal accountability. In such a system, the lack of concern for the quality and sustainability of the loans led to widespread issues within the mortgage market, ultimately contributing to the financial crisis.