Here's a fresh take, and one I personally find quite credible.

This crisis is less about demonically predatory lenders, and more of an analysis about how a lot of very typical cognitive errors lead everyone (buyers, lenders, regulators) into dangerous ground...

http://meganmcardle.theatlantic.com/archives/2008/10/how_did_it_all_happen.php

America needs to quit blaming and start figuring how best to shovel our way out of this world-class clusterf*ck.

This is a good read.

The followups are good as well.

Here's a quote from one such poster (Ann, I believe)

"How did it all begin? The drive to allow unqualified people to get loans goes back farther than the last few years when Democrats resisted attempts to regulate Fannie and Freddie.

In a Sept. 1993 Chicago Sun-Times article, Madeleine Talbot (who has been described as a mentor of Barack Obama) led an ACORN initiative to get Fannie Mae to make mortgages for low- and moderate-income people with troubled credit histories. Talbot is quoted as saying "If this pilot program works, it will send a message to the lending community that it's OK to make these kind of loans."

www.nypost.com/seven/09292008/postopinion/opedcolumnists/os_dangerous_pals_131216.htm?page=0

The Clinton Administration’s National Homeownership Strategy formalized these changes, through the Treasury Department and HUD (not through Congress). Clinton expanded the Community Reinvestment Act (CRA), allowed CRA-related loans to include subprime loans, and both allowed and encouraged Fannie and Freddie to hold subprime loans. Here’s a link to an Investor’s Business Daily article on his role:

news.yahoo.com/s/ibd/20080924/bs_ibd_ibd/20080924general01

As banks made more and more subprime loans (which they often had to do because of the CRA, and which didn't seem so risky since many could be sold to the GSEs), people got used to the lower standards and got more and more carried away. When the problem got big enough, the Republicans tried to rein in Fannie and Freddie but the Democrats wouldn’t go along. Here’s a quote from Barney Frank from the House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

Many people are responsible – borrowers, lenders, Wall Street, the credit-rating agencies, politicians on both sides – everyone got carried away. But the bubble got going and the cognitive biases kicked in because the Democrats worked so very, very hard to lower our barriers and convince everyone that lending standards didn’t matter."

The failing mortages in and of them selves IS NOT repeat IS NOT the current problem. The problem is with the C.D.S. that were issued on those mortages. It is estimated that there are over $45 Trillion worth of them in the market. Not all bad but not all good. Imagine if you will that some one is about to die so I take out insurance on them, then all my friends take out insurance on that same person. Well when he dies (mortage fails) the insurance has to pay up. Now with several time as many policies on each person (mortage) about to die (fail) the insurer goes broke. That is why AIG is no more. The CDS market was kept unregulated on purpose, it was to difficult to understand or so the regulators were told by the people running the market and the market became over leveraged and now has collasped.

http://en.wikipedia.org/wiki/Credit_default_swap

Default on mortages is only slightly higher today than it was ten years ago. 10.94 % today 10 years 10.54%