The lenders aren't the only stupid party.
I recall one subprime exec saying (paraphrased) "why should I originate a fixed rate 80/20 paying 102, when I can sell an Option ARM for 105?"
Investment banks, hedge funds, etc were paying lenders MORE money to originate crappy loans.
The mortgage broker is grinning nicely as he sells the sucker--I mean borrower-- on the advantages of the Option ARM, Stated job, Stated asset, Stated IQ, Stated Signature, Stated ID product. Course the borrower thinks,"This is so easy, a caveman could do it." Borrowers sells title to his 98 Buick to the local title pawn store and uses the $1400 as earnest money on 17 flip houses portfolio focused in a Sacramento suburban neighborhood (Vista la bovine) and a new luxury underground zero lot line community 184 miles outside Las Vegas (they aren't building any more land, ya know). Replay 1M times and viola...
Oh, and short answer: greed.
