That is right, but an important aspect was the guy selling that mortgage did not care if it defaulted because he was going to sell it. Whether it was successful or failed did not matter to him.<quoted text> the biggy was the balloon loans. You know the ones where the payments were low enough to qualify but bumped up after a couple of years. People didn't save money, keep other payments low, and plan for the increase. Throw in no or little down payment and when the balloon hit they just walked away.
The people that bought it from that seller didn't care because they bundled them up into securities. Mortgage based securities were selling like hotcakes & that created the demand for more mortgages. So it goes well beyond banks & well into investment houses. Companies like Standard & Poor then gave them AAA rating for the right price.
The buyers often knew they could not make the balloon payments. Many were hesitant but they were told that when the time came for the balloon payment that they could just remortgage at that time. But home values tumbled & they were all underwater.
So many were duped.
Now these types of mortgages were not CRA loans. So for all those out there screaming "CRA CRA", no. CRA loans were typically standard long term mortgages.