Study: Lax standards caused mortgage woes
Academics pin the mortgage crisis on lenient lending criteria.
Lax standards for lending are at the root of the mortgage crisis, according to the findings of a recent academic study, the Financial Times reported today.
The rate of default on mortgage loans has risen in recent years because banks are less restrictive when the loans are going to be securitized, noted the study that was conducted by academics at the London Business School and University of Chicago and other educational institutions.
The study suggests banks and credit rating agencies have under-estimated the risk of securitized loans in the United States. The study was the first large-scale attempt to measure the link between mortgage defaults and the process of turning loans into bonds.
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