Question

The originate-to-distribute business model has a serious ________ problem since the mortgage broker has little incentive to make sure that the mortgagee is a good credit risk.

Answer 1

Answer:

Principal-agent.

Explanation:

This problem comes to play when one has to make decisions on behalf of another person.

The principal-agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal.

It can occur in any situation in which the ownership of an asset, or a principal, delegates direct control over that asset to another party, or agent.