I think the causes are far more fundamental than the technology, but rather human weaknesses instead, let me explain.

Just over half a decade ago I and another colleague (from the business money markets) created a startup that focused on building credit risk analysis software. Although it was aimed at more specialised business finance rather than residential mortgage markets, the lesson I learned from the experience is probably relevant here.

Our software enabled the banks to get levels of transparency into the business being financed at a much greater depth and accuracy than the ‘fag packet’ math previously relied upon. In this case a great deal of complexity related to the insurance of the risk, compliance with credit re-issuing and aggregated ledger risks could be easily assessed.

Often when we cranked the lever on the business and it’s ledgers the risk turned out to be much greater than the intuition of the current banks risk assessment employees.This in turn could lead to more business rejections. It also highlighted some of the bad past decisions made by existing sales.

But here is the catch, what the software was doing was spoiling the cosy ‘finger in the air’ sales process, and as such the decision came down to sales dept vs risk dept. Often greed would win with comments like ‘We are doing fine right now and making money so why upset the apple cart’.

Thus I would not be at all surprised if the same human weakness of greed allowed the banks to over extend themselves in the mortgage markets, attempts by innovative technologies would unfortunately fall on deaf ears.

regards
Al