Combination of the two. Sadly, bankers are NOT saints,
“Another thing that changed was the secondary market for loans. Write them and move them on to hungry investors wanting risk.”
They weren’t a risk, they were AAA RATED!!! Nothing was as safe as a mortgage.
It’s funny. The only time in my life when I made money in the stock market was when I shorted financials just prior to the 2008 (including Countrywide, which went to $0). All that I did was look at the terms of a handful of loans being made in South Florida (which were public record, at the time) and it was clear that they could NEVER be paid back, as they were “Option ARMs” and designed to have their payments EXPLODE after 5 years (as in tripl, say from $1500/month to $4500/month). And that would have been fine...except they were qualifying people based on the pre-explosion payments, with the understanding that they would simply ‘re-finance’ before the explosion - well, once property values started falling, no more re-financing, and it was game over for them.
There were reams and reams written about how the packaged mortgages were AAA rated investments due to loan diversification and credit enhancements. In the beginning this was true because most of the underlying mortgages were not badly structured. It was when the mortgage market entered the “no doc” (no documents) stage that the Ponzi Scheme fell apart. Make no mistake, the seller of the Ponzi Scheme was none other than the U.S. Government run by the RATs.