Because the lenders sold many-though not all-of the loans they made to other investors, in the form of mortgage bonds, the industry was also fraught with moral hazard. It was a fast-buck business, says Jacobs. Any business where you can sell a product and make money without having to worry how the product performs is going to attract sleazy people.
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...