The Community Reinvestment Act and the litigation against a Chicago Bank (1998 time frame) regarding the CRA forced all banks to offer loans to applicants that would not normally be approved.
That is why banks like WaMu securitized the loans as insured Bonds.
The banks only obligation was to replace failed loan with an equal loan back into the tranche.
All losses were recouped to the CMO/CDO by the Insurance (CDS) grantor.
Quote from the FDIC; “WMB securitized $2 Trillion in RMBS of which $500 Billion was sold to F&F.”
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