Prior to the crisis, the nation’s mortgage finance system developed into an extensive set of specialized industry players with a complex set of linkages operating not just at the lender and borrower level, but also with an extensive secondary market that was intended to diffuse risk. All of these relationships were governed by contracts.
The promissory note, for example, lays out the terms under which the borrower will repay the loan, while the mortgage reflects the lender’s security interest in the property. But there are also contracts between the borrower and third parties and between the lender and third parties.