Final answer:
Mortgage brokers in New York are classified as Mortgage Loan Originators under laws that supervise the sale of securities and banking practices, a response to lending changes that allowed securitization of loans, distancing financial risk from loan originators.
Step-by-step explanation:
Mortgage brokers in New York are classified as Mortgage Loan Originators under specific state laws that regulate and supervise the sale of securities, including the practices of brokers, dealers, and bankers. These laws came about due to changes in finance beginning in the 1990s which allowed lending institutions to securitize their mortgage loans and sell them as bonds. This change led banks to separate the financial interests of the lender from the borrower's ability to repay, making it more attractive to issue high-risk loans since the originators were not bearing the consequences if borrowers defaulted.
Historically, local banks made home loans and faced repercussions directly if a borrower failed to repay. In contrast, by the early twenty-first century, a broader range of financial institutions were originating home loans. However, due to political pressure and the perception of continuous gains in the stock market and real estate prices, government regulation was less restrictive, exacerbating the risks within the lending industry. This scenario underscores the need for stricter oversight of Mortgage Loan Originators to ensure financial stability and protect the economy from potential crises stemming from irresponsible lending practices.