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Once mortgages could be packaged and sold, the originator was paid on volume and no longer held the loss if the borrower defaulted. Every link in the chain, from broker to lender to packaging bank, was paid on the transaction rather than on the loan's performance, so underwriting standards eroded as each party pushed risk downstream.
Rating agencies were paid by the banks whose securities they rated, and those banks could shop among agencies for the best grade. This turned ratings into a product sold to issuers rather than a judgment made for investors.
Fannie Mae and Freddie Mac were shareholder-owned companies that borrowed cheaply because markets assumed an implicit government guarantee. They used that subsidy and aggressive lobbying to fend off regulators and grow huge, thinly capitalized portfolios. When they collapsed, taxpayers absorbed the losses the government had never formally promised to cover.
Bankers, rating analysts, and regulators saw warning signs years in advance, and some firms, such as Goldman Sachs, hedged against the very products they were selling. They kept going because short-term fees, bonuses, and competitive pressure rewarded participation, while the long-term costs fell on someone else. Both deregulatory ideology and government homeownership push fed the same outcome, so no single villain explains the collapse.