The Subprime Mortgage Crisis

When it comes to the subprime lending crisis, I tend to lean towards and Occam's Razor theory ... the simplest answer is usually the right one. Folks bought more house than they could afford yet banks had become decoupled from their customers as far as mortgage loans go. Back in the It's a Wonderful Life, George Bailey days, when the Savings and Loan made you a mortgage loan, the bank typically held the mortgage for the term of the loan ... 15 years for a 15 year mortgage, 30 for a 30. The standard for banks nowadays is to package the loans up and get rid of them soon after origination. Thus, it doesn't matter so much as to the quality of the loan but as to "how many of these can we do so we can make a quick profit."

To me, this is the heart of the problem. If the local savings and loan has no vested interest as to the quality of the loan then potentially, the quality of the loans will be substandard.