In fact, because ratings are paid for by issuers, rating agencies may have incentives to expand coverage to products whose risk assessment is difficult and, potentially unreliable, in order to maximise their revenues. Besides, agencies may also provide commercial advice to the issuers of those securities that are then requested to rate.
As regards originators of loans, their incentives to screen and monitor borrowers may have been reduced under the “originate and distribute” model, once they sold the originated assets to intermediaries that subsequently took care of repackaging them into securities. Instead, the loan originators may have concentrated on expanding volumes of loans originated to boost their profits.