waterworld
The other piece to the mortgage meltdown is the brokers. Many, if not most, home buyers get their loans through brokers, not directly from the bank that finances the loan. As the market for mortgage-backed securities rose, banks wanted brokers to deliver more home loans. In the very short term, it was the brokers who stood to make the most from sub-prime loans, because the broker gets his or her fee at the point of sale. Unscrupulous brokers quickly figured out all the easy ways to manipulate the loan underwriting process using things like stated-income loans, low-doc and no-doc loans. Many brokers participated in simply making up information for people who wanted to borrow, since the broker would get paid regardless of whether the buyer followed through on the promise to pay. In many of these transactions, it’s difficult to tell whether the home-buyer or the broker was manufacturing information to get the loan — either of them might have the incentive to do so.
There are a some prosecutions of brokers going on out there, but very few compared to the volume of brokers who were committing outright fraud, in my opinion.