The problem with mortgages

As I understand it the problem with mortgages which lead to the global financial crisis was not that people were borrowing money on mortgage.

The mortgages themselves were “high risk” – the amount lent was very high compared to the value of the property and the people who were borrowing had poorly paid jobs, which meant they were less likely to be repaid in full – but that was not the problem either.

The problem was that the mortgages were wrapped up as a package to be sold on to other banks – but that was not the problem.

The problem was that the package was rated as “lower risk” by the clever people who work out risk for financial institutions.

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