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Bad Underwriting at Heart of Mortgage Meltdown

Grant Thornton survey of bank executives

January 8, 2009

By staff

A new survey of bankers indicated poor underwriting standards were the single biggest factor in the credit crisis. Mortgage fraud, however, had little impact.

The survey, conducted between Nov. 5 and Dec. 10 by Grant Thornton LLP with Bank Director magazine, asked participants to select up to three causes of the credit crisis from a list of 10 causes. The 339 survey respondents were senior executives at banks and savings institutions.

"Lax underwriting standards" was selected by 54 percent of the respondents -- more than any other cause, according to the 16th Bank Executive Survey.

Nearly half -- 46 percent -- chose "political emphasis on increasing home ownership," while 44 percent blamed "lack of oversight of the mortgage industry."

Another 40 percent of the respondents attributed the credit crisis to "inadequate understanding of risks," and 39 percent selected "lack of oversight of Fannie Mae and Freddie Mac."

Other choices that were less frequently selected included "credit default swaps," "inappropriate or aggressive commissions for mortgage brokers" and "interest rates kept low for too long" -- each which was selected by 18 percent of the respondents. "Use of the fair value accounting standard" was selected by just 15 percent of the panelists.

"Mortgage fraud" was selected by just 11 percent of those surveyed -- the lowest showing among all choices.

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