Most of these 'junk loans' that were made to borrowers with bad credit were resold on the stock market to third parties. The fact that lenders 1) didn't have to suffer the consequences of making bad loans and 2) financially profited from making those bad loans suggests that they had an interest in seeing relaxed underwriting standards. For this reason, I can't help but think that the author is pointedly ignoring the main contributing factor to the mortgage disaster.
depends on what you mean by sell. But the way I understand it, it's way easier to sell loans without caring if they get paid back. Because then your essentially expanding your market to include 'people who won't pay back'. Bigger market means more sells. Normally you would exclude those people because you eventually want your money back with interest, but the sellers in this particular story didn't care about that. (It wasn't their money)
It doesn't matter if the morgages are repaid and it may even be beneficial to bankers if there is a small level of defaulting. Unlike junk bonds, resold mortgages have an underlaying value in property. Unfortunately, beyond a small level of defaulting, a glut of unsold property decreases property prices, decreases the value of already resold mortgages and make property more affordable to nieve investors.
