Because it rewards idiotic behavior like this. Idiotic on the part of the banks, that is.

I think fraud and misrepresentation on the part of borrowers is one of the biggest component in the mortgage debacle. Coupled with it the willingness of banks to write mortages on just about anything and you have the perfect storm.

If the perception of risk is removed from all parties in the transactions (since banks were in a rush to securitize the mortgages), then you get bad behavior and the possibility for fraud increases. (Although I don’t understand what Mr. Wright – described in the linked article – could have been thinking?)

We know a little bit about the mortgage industry, and while we personally haven’t seen fraud, we’ve seen some people get some big houses with not a lot of assets, and just looking at the payments relative to income would make me very uncomfortable if it were me. But the borrower and bank are both at fault. The borrower for being reckless and buying above their means, and the bank for letting them do it.

That’s why I think we shouldn’t reward either of them.