Question
Many factors contributed to the financial crisis of 2008. One significant factor that resulted in many bad loans was a failure by lenders to investigate
Many factors contributed to the financial crisis of 2008. One significant factor that resulted in many bad loans was a failure by lenders to investigate loan customers sufficiently. For example, Countrywide Financial wrote many loans under its fast and easy loan program. That program allowed borrowers to provide little or no documentation for their income or their assets. Other lenders had similar programs, which earned the nick name liar loans. One study found that in these situations, 60% of applications overstated their incomes by more than 50% in order to qualify for a loan. Critics of the banking industry say that because loan officers were compensated for loan volume and because banks were selling the loans to investors rather than holding them, the lenders hand little incentive to investigate the borrowers creditworthiness.
1. What steps should the banks have taken to ensure the accuracy of financial information provided on loan applications?
2. What measures were taken in 2008 and beyond to help prevent another financial crisis similar to that of 2008?
3. In your opinion, and according to current studies, is the United States and the world on track for a similar situation in 2019/2020?
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