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.
The diminished incentive to screen and monitor borrowers implies that investors may have ultimately acquired assets of relatively lower quality and performance. 3  See Ashcraft and Schuermann, (2008), Rajan (2005) and Sufi and Mian (2008).