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Moral Hazard: The Demise of the Mortgage Industry
"Moral Hazard occurs when a party insulated from risk behaves differently than it would behave if it were fully exposed to the risk."*  It can be said that the reason Mortgage "Brokers" are being pushed out of the market by regulation is because of Moral Hazard and the fact that they are unregulatable.
I was watching the movie "Wall Street: Money Never Sleeps" this weekend, and a lady asked Michael Douglas what Moral Hazard means.  He defined as Wikipedia did above, but slightly differently.  He stated its when you give someone money who is not responsible for what happens to that money.  I immediately turned to my wife and said, "that is what has happened to the Mortgage Brokers in our industry."
HOW CAN THIS BE?
Here is my disclaimer, first and foremost.  I do not believe that all Mortgage Brokers are or were unscrupulous the same way not all stock brokers are like Gordon Gecko, Michael Douglas' character in both Wall Street movies.  The fact remains nevertheless that many Mortgage Brokerage offices that are out of business today were able to escape the danger of regulation by simply going under and/or filing for Bankruptcy.  They simply passed the buck.  Many ... more

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