Twenty-five lenders were responsible for nearly three-quarters of subprime loans during the peak of the housing boom, 2005 to 2007. Today, top executives from each of these companies or their subsidiaries are back in the mortgage business, many of them developing new loans that target borrowers with low credit scores and small down payments, according to the Center for Investigative Reporting.

Although some of the loose lending standards that prevailed in subprime loans have been outlawed, some experts fear the current climate of tight regulations and fearful investors won’t be enough to deter risky loan practices.

Susan Wachter, a real estate finance professor at the University of Pennsylvania’s Wharton School, says companies rely mainly on fees from originating and servicing loans, which will only grow if lending increases, and therefore will eventually encourage companies to “undercut competitors by getting people into those loans on whatever terms possible.”

“That toxic business model is still out there,” and it’s being exploited by the same people, she said.

That’s because the government made no meaningful effort to identify bad actors and hold them accountable, said Dan Alpert, managing partner with the investment bank Westwood Capital LLC.

“Had there been prosecutions,” Alpert says, companies wouldn’t touch anyone deemed responsible “with a 10-foot pole. The only thing people are concerned about is the loss of their freedom. They can lose all their money and make more money, but they take it quite seriously when jail is staring at them.”

Source: Center for Investigative Reporting

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