Final answer:
License laws exist to maintain the stability of the financial system by ensuring lending practices are responsible and non-discriminatory, and to protect individual borrowers, the housing market, and the broader economy from risky practices.
Step-by-step explanation:
The purpose of license laws is to protect the integrity of the financial system and the interests of consumers by regulating financial institutions and their lending practices. In historical context, local banks once made home loans with a careful assessment of a borrower's repayment capabilities. However, with the evolution of finance and banking laws in the 1990s and early 2000s, banks began to securitize mortgages and sell them as bonds. This led to an increased willingness to make high-risk loans that might not be repaid, knowing that the financial consequences could be offloaded to others.
Licensing laws now ensure that institutions providing mortgages do not discriminate based on age, race, sex, or marital status and necessitate public disclosure of loan distribution data. The Federal Reserve (the Fed) plays a crucial role in enforcing these laws, among other consumer protection measures. These regulations serve to protect not just individual borrowers and their communities but also the stability of the housing market and the larger economy from practices that could lead to financial crises like that experienced in 2008.