The borrowers were not experts in the detail of the mortgage markets. They took loans that were offered to them by industry actors who knew or should have known

The borrowers were not experts in the detail of the mortgage markets. They took loans that were offered to them by industry actors who knew or should have known that the sub-prime loan applicants were a bad risk, but let’s give them a pass on that because who could have predicted a real estate crash right? The real fraud was not writing these loans to less credit-worthy borrowers. It was the mechanism used by Wall Street banks to combine these sub-prime mortgages into mortgage-backed securities. Not only did the bankers often mis-represent the composition of their MBS, they also employed massive amounts of leverage based on the fraudulent ratings they knew they were getting from the credit rating agencies, no questions asked. The leverage involved in MBS is what makes them an attractive financial product to municipalities and governments since this extra leverage is what made the impressive promised returns available on such a “safe” asset class. However, since the Wall Street Banks lied about the quality of the mortgages, the resulting MBS were massively over-levereged. This is why Ryan Reynolds explained in The Big Short, it only required a small % of mortgages to default to create a cascade of failures. Tl:dr It wasn’t the fact that banks lent to less credit-worthy borrowers that led to the 2008 Financial Crisis, it was all the fraud that went into the construction of the mortgage-backed-securities (MBS)