This idea is simple enough. A lot of the mortgage mischief that went on was occasioned by banks who had every interest in making a loan, but no interest in whether the loan was good because the loan was going to sold to some other entity.
A lot of us have seen this over the past twenty years. We made our loan with some local bank and then it goes to another bank, and then another bank. I had a loan that started with U.S. Bank Mortgage, who sold it to Comerica, who then sold it to National Mortgage and then to Nations Bank and then to Bank of America then to Cenlar and then to Firstar Home Mortgage. In the first decade of the new century, a lot of this stuff ended up in CDOs (Collateralized Debt Obligations), and in the portfolios of villages in Sweden.
If the banks must continue to hold a piece of the loan, let's say 25% or 50%, they will be motivated to make solid, profitable loans. This will not preclude the need for oversight and regulation, but it will reduce some of that need.
