According to a study by economists at the International Monetary Fund (IMF), stricter regulation of lending by non-bank mortgage originators could have prevented the housing bust. The authors of the study, Jihad Dagher and Ning Fu, both analysts for the fund, say that their studies show that “independent, non-bank lending increased in nearly all counties across the United States during the boom years.” They believe that these independents are “a strong predictor of the early rise in foreclosure” and also showed in advance that there would be a “contraction in credit, decrease in housing prices and rise in unemployment.” They believe that stricter regulation of these independent lenders would have prevented much of the tumult of the past few years.
The authors emphasized, however, that these findings do not absolve banks from their share in the blame for the real estate, mortgage and credit crises. However, they do believe that non-bank lenders like Ameriquest, New Century and WMC Mortgage probably “contributed disproportionately to the credit bubble”. The paper suggests that “weak or poorly enforced regulation of non-bank originators combined with perverse financial incentives for originating and selling bad loans…fueled the mortgage boom and bust.” IMF has stated that the paper does not reflect the fund’s views.
Do you think that non-bank lenders played a major role in the housing bust?
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