That SHOULD be the case, I certainly agree.
However "liar loans" or "no doc" (no documentation) loans were in fact given out. In some cases all the illegal had to show were say, a few utility bills.
As you know, loan originators get paid up front, when the mortgage is signed and delivered; and there were many cases where for example, Spanish-speaking reps would get illegals to sign up for a loan that no normal person would approve. However, once the loan is sold, the risk is transferred to someone other than the loan originator.
Don't believe me? Do a Google search on "no doc loan" or "no doc mortgage" and spend a few minutes reading...
Look at it another way — those loans (both good and bad) were products to be sold. The more loans that were made, the more inventory on hand to sell.
Unfortunately, the folks buying the loans didn’t have a clue as to just how bad they were. And these were some usually smart people — major banks, hedge funds, insurance companies, etc. etc. etc.