INSIDE COMPLIANCE

The 2008 financial collapse occurred when banks began substantially increasing access to debt in the form of adjustable-rate mortgages. These types of mortgages allowed borrowers to take out home loans at an intertest rate that would increase over time. This meant that more borrowers could afford the initial mortgage payments but would end up defaulting on the loans when their adjustable interest rates kicked in. The banks then packaged these high-risk loans together and sold them as securities to mutual funds, investment banks, and pension funds. When most of these high-risk loans defaulted, the market crashed. The collapse occurred in part because the housing market lacked the regulations needed to deter this kind of high-risk lending. The recession that followed cost thousands of jobs, homes, and retirement accounts.