Why were there no checks on these fraudulent practices and unscrupulous mortgage brokers?

Question/Comment: I have a hard time understanding how some of these mortgages were ever permitted to happen. In particular, mortgages for which absolutely no documentation for verifying income or anything else were required. This allows borrowers to lie on their applications and allows mortgage brokers to encourage borrowers to do so. Why were there no checks on these fraudulent practices and unscrupulous mortgage brokers?

Paul Solman: For many reasons. Among the most prominent: Why screw up a good thing? Everyone seemed to be profiting from this arrangement.

Homeowners who previously couldn’t afford to buy now COULD (and this was “the ownership society,” remember, where owning a home was the policy of Democrats and Republicans alike). Mortgage brokers made a quick fee. Investors got a little extra by way of return. Ratings agencies got a lot of new business okaying the pools of mortgages. Investment banks (“IBs”) made money packaging them as securities. Hedge funds profited from investing in, and/or loaning money to, the investment banks. Commercial banks made money lending to the IBs too. And Alan Greenspan’s Fed kept interest rates low to maintain a buoyant economy in the aftermath of the dot.com collapse and 9/11.

This was like any boom. Or, if you prefer, bubble. The more people on the gravy train, that is, the higher the cost (and resentment) of blowing the whistle on its seamier side.

If housing prices had kept going up, FOREVER, the game could have kept on – forever.