Unfinished Business: New housing finance system still needed

The old finance system had two key faults which doomed it to failure. First, those who originated, brokered, rated or packaged mortgages had no risk from subsequent defaults except through lawsuits alleging fraud. They saw themselves in a fee generating business and paid too little attention to the default risk in individual mortgages. Second, Federal financing agencies and mortgage lenders who financed mortgages were too thinly capitalized relative to their huge liabilities. They relied on

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