BANKS IN RUIN

So why is the financial sector in ruins? The answer is twofold. First, just as banks loosened the requirements for a quality borrower, lenders also dismissed the idea that the real estate attached to the loan needed to be worth more than the loan amount. Under the traditional lending model, banks required borrowers to pay at least 20 percent of the home's purchase price. And if the borrower couldn't afford that large of a down payment, the bank required mortgage insurance - an industry that has grown to insuring $949 billion worth of mortgages, according to the Mortgage Insurance Company Association. Those insurance policies typically guaranteed up to 20 percent of the home's value. Therefore, if the homeowner defaults, the bank should recoup most of the loan's value, assuming the value of the property did not fall more than 20 percent. Second, even where lenders required mortgage insurance if down payments were too low, loose qualification requirements opened the door to fraud. Now those insurance companies are finding the fraud and denying payouts to the lender when those loans default.

The "loose qualifications" referred to were "mandated" by congress so that their constituents could get loans - even when they weren't qualified! This whole mess is a government mandated problem!