one of the causes of the current financial crisis was the buying and selling of mortgage debt. from what i understand, when you separate the bank that originally offered the mortgage from the entity that later services it, it eliminates a lot of the incentives that would otherwise keep the mortgage business sane.
when giving a mortgages doesn't mean a 20-30 financial commitment but instead creates a salable asset, banks have every incentive to give credit to anyone they can so they can sell the loan off for a profit. if they don't service the debt, why do they care whether the homeowner later defaults? the separation of the original lender from the servicer also makes it much more complicated to renegotiate mortgages when something goes wrong, even when that would otherwise make the most sense. properties go into foreclosure even when it doesn't benefit anyone involved.
so why not just ban the sale of debt based on real estate? it wouldn't help fix the already existing problem, you couldn't reverse sales that already have happened, but maybe it would help prevent this mess in the future. it seems like a simple ban would be easy to enforce. is there any reason that we would want to allow the sale of real-estate based debt to continue?
