I was worried it wasn ' t clear enough that it was him . <| sep |> Yea it ' s definitely more relaxed here . I have a friend in the HVAC service side and he ' s sleeved up usually rocking a short sleeve work shirt . <| sep |> Underwriting is the process of the bank determining if it ' s a good idea for them to loan you money . Note , FOR THEM . Its not for you . Underwriting costs money . The more strict the more money . Whether a loan is a good idea for the bank depends on how long you can be expected to make payments , and whether the value of the house can cover the rest of the loan if the house has to be sold in foreclosure . Housing prices were rising rapidly . And a lot of people were making ok money . It was easy to lend to people at high interest rates , and if a borrower defaulted foreclosure was expected to easily cover the cost . It ' s worth emphasizing again just how fast housing prices were rising . Whole industries of house flippers and self help guides sprang up to essentially take advantage of this . People earned their livings buying houses , doing some basic upgrades , and selling them when the market rose . Anyway , if loans are safe even if they default , or if default is rare across the board , or both , underwriting isn ' t very important . Why spend money checking if a bad thing might happen if the bad thing is really rare and it won ' t hurt you very badly anyway ? Nobody buys penguin attack insurance . Almost nobody gets attacked by penguis and if it actually happens to you you ' ll be fine . Well , same deal . So banks started relying heavily on stated income loans . Rather than requiring you to prove your income and financils , they just asked you . Most people don ' t lie , and they could absorb the losses when it happened . Banks also don ' t want to own loans once they ' re made . They ' d rather set up the loan , then sell it . Imagine that I give you $ 100 k in exchange for a promise that you will pay me $ 200 k over ten years . Then I sell the right to collect that money to someone else for $ 120 k . I just made $ 20 k . That ' s a simple example . The real arrangements are very complex . But the point is that the bank is now protected even further from the chance the borrower will default . The risk of default is factored into the price , and while the arrangement is set up so that there ' s some guarantee for the buyer , there ' s a good bit if safety built into the system . In fact , the buyers were protected from loss as well by a system that aggregated lots of loans and set up tiers of payouts based on priority systems . In order for the best tiers to not pay out the whole housing industry would have to collapse at once , which everyone thought was impossible . And the low tiers were very likely to at least partially fail , but they were priced dirt cheap to account for that . Now look at the buyers . Let ' s say you think housing will keep rising by X , so you buy loans based on that expectation of loan safety . Someone else thinks they will rise by Y , a bigger number , meaning that they think the loans you bought will be even more safe and profitable . So you sell the loans to them for more than you spent . In fact you notice that they often are optimistic about prices . So maybe you but some loans you think aren ' t that great because you know so many people are so confident in the market that you ' re sure you can sell them for more than you spent . Housing prices continue rising , so this keeps happening . Soon loans are mostly owned by people who paid tons of money for them , and who will only earn back their money if absolutely everything goes right . Unfortunately part of the reason housing prices keep going up is because it ' s crazy easy to borrow tons of money to buy them . Builders are building everything they can as fast as they can because everything sells . But things are getting more and more precarious . Good borrowers are getting thin on the ground . Underwriting is as bare bones as it can be . Investors are betting on returns so high that it seems impossible . Everything keeps trending towards a breaking point . And worse , the closer you get to that breaking point the more money there is to earn . If you want to buy a house , you can do so with the worst imaginable credit . If you want to lend money someone will borrow it . If you want to buy loans you can resell then to someone somewhere . Eventually the party stops . And whoever is holding loans and not cash loses . Something somewhere happens that makes people worry . Buyers aren ' t as willing to buy . But other people bought things expecting to sell them . Suddenly assets that were valued at incredible values have no value because no one will buy them . No value except the inherent value of the loans . But everything is stretched do tight that even a small increase in loans going into default is enough to ruin investor margins . Worse , a ton of people work in construction , and NO ONE can make most in construction if banks don ' t want to lend , or if a lot of brand new houses are being sold in foreclosure . So they lose money , and since they ' re mortgaged to the gills like everyone rise they default too . In fact , since banks were happy to lend huge sums of money to them , borrowers are mostly in giant houses they can only just barely afford . So small income changes have a huge effect on their ability to make monthly payments . All through the economy people get nervous and save money in safe places . This means they aren ' t buying things , so everyone who makes money selling things sees a drop in profit . Which continues the vicious cycle as more people default on loans . Somebody has to end up screwed . Borrowers are screwed , but only out of the houses they couldn ' t afford . Any lender or investor holding mortgages sees a giant drop in asset value . Some are on the verge of going under , but if they do they ' ll drag everyone else down with them bdcause they ' re such an enormous and integral portion if the economy that ' s so integrated into the business of their customers and each other . Bipartisan efforts begin to bail out banks , and to encourage banks to refinance loans . President Obama is elected and Republicans instantly switch rhetoric and condemn bank bail outs and refinancing programs . I think that covers it .