financial companies, which put all the mortgages into a big pool, creating large financial securities, and then re-sold

these mortgage-backed securities to investors. In this way, the lenders off-loaded the mortgage risks to investors.
Investors were interested in mortgage-backed securities as they appeared to offer a steady stream of income,
provided the borrowers repaid them. Investors relied on the ratings agencies to assess the credit risk associated

with the mortgage-backed securities. In hindsight, it appears that the credit agencies were far too lenient in their

ratings of many of the securitized loans. Bank and financial regulators watched the steady rise in the market for

mortgage-backed securities, but saw no reason at the time to intervene.

When housing prices turned down, many households that had borrowed when prices were high found that what they

owed the bank was more than what their home was worth. Many banks believed that they had diversified by selling
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