Six Degrees of Separation

Abstract

One Degree of Separation For much of the last century, it was the savings and loans, or “Thrifts” that provided the bulk of the mortgage loans. In the traditional lending model, the Thrift raised money via deposits from its customers and then lent that money to other customers for home purchases. If the borrower was unable to make its mortgage payments, the Thrift would suffer the consequences directly. With the advent of deposit insurance, the depositors were protected and the only risk was to the capital of the institution. With limited risk management capability and limited ability to raise deposits outside of their home markets, Thrifts were subject to a boom and bust cycle that meant that capital flows for mortgage lending were uneven.