According to Jack Guttentag, professor of finance emeritus, Wharton School, there was an easier way than Dodd-Frank.
The many options that existed during the bubble period could have been preserved by eliminating the profit illusion associated with the riskier ones. The profit illusion was an essential part of the bubble — without it, the bubble could not have been maintained or even begun.
The profit illusion can be eliminated by requiring that reserves be set aside on each loan based on its risk. This is “transaction-based reserving,” or TBR. It is a common practice in the insurance industry, including mortgage insurance, where it works very well.