It’s not a mystery . It was my job . I was in the industry ,on the legal and financial side.
In a nutshell, banks and mortgage companies were shamed into offering mortgage loans to people they knew couldn’t afford it, and would default in short order.
That’s it. Not really any need for further discussion.
Exactly. They called it a subprime crisis, when it had nothing to do with subprime mortgages. There was a HUGE difference between subprime and what was forced down the throat of banks and mortgage lenders.
The difference between prime and A- paper was minimal. Usually just a one or two disqualifications from prime. Those loans were still good. In fact, down to B paper still wasn't super high risk, considering the people that were still qualifying even with the rate bumps. You could set those people up on a 2 or 3 year fixed rate (adjusting after that), with no prepay penalty, and refinance them at the end of 2 years.
Where it got hairy was the low B to D. Slippery slope there as people that weren't A- or high B usually missed on the way down that ladder as well. Matrixes were garbage down below B paper. Mostly there to sell brokers on doing business with the subprime lender producing them, rather than actually being closeable.
STILL that had nothing to do with the crisis, as that centered around govt servicers lowering their qualifying criteria for people that even subprime people knew weren't ready to buy. They were forced to do so, sure, because of quotas and balance sheets. They should have fought harder, but didn't because FNMA AND FREDDIE backed the product without any investors/servicers that wanted to touch the finished product. Those portfolios were a MESS.
Of course, the banks blamed it on mortgage brokers because they were easy targets and took away most of their good quality business prior to the "crisis" created by the govt entities.
Since then, they've made it even worse for good standing borrowers to get loans tailored to their needs. Nearly zero flexibility for any remaining brokers and small banks to customize their offerings. Dodd Frank is only part of the story
Govt overreach killed that industry just as "affordable care" has forced insurance into a dangerous state across the country, and refusing to protect the border and export illegal aliens has crushed the future of "social security."