It was called 'equal opportunity'. The banks had to come up with the loans for those that normally would not quslify so that they would not be 'discriminatory'.

The banks that funded these loans could not sell them to FNMA or other GSE's, (Government Sposored Enterprises) they had to be funded by Wall Street and the investors.

BTW, thorough an interesting accounting 'quirk' (which was perfectly acceptable) those loans that were "pay option", "pick a payment", or otherwise had a payment option that didn't even cover the interest due for the month (those 1% "rate" loans) anytime the borrower didn't pay the minimum interest only portion of the payment the BANK that lent the money was able to record the difference between what WAS paid and what was DUE for interest as ACTUAL income that month, and not when it would eventually be received.

Now that housing prices are declining (or not outpacing inflation) the banks are 'writing off' the money they THOUGHT they would receive but have actually recorded as income.

Simply put, they accounted for the chickens before they hatched.