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From Financial Crisis to Recovery (Collection) by Mark Zandi

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6. Bad Lenders Drive Out the Good

Residential mortgage lending was previously a very staid business. Lenders meticulously considered the merits of making loans: They obtained careful appraisals, required sizable down payments, and made sure each borrower had a stable job and reliable income. Lenders knew their institutions would take substantial financial hits if borrowers failed to make good on their loans. They also knew regulators were watching, checking to make sure each loan was sound.

Staid was the last thing you could call mortgage lending during the housing boom. Frenzied might be a better term—and as the boom became a bubble, out of control would be even more appropriate. The mortgage business had been completely transformed. Lenders ...

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