The bank writes the loan, takes a fee, and often sells it before the ink is dry. Within days, the risk that you stop paying belongs to somebody else.
Watch what that does to attention. A lender who keeps your loan for 30 years studies you carefully. A lender who holds it for a week studies the fee.
Thousands of loans are bundled into one bond. A rating agency stamps the bond safe, and the bank pays the agency for the stamp. Nobody in that arrangement has to be dishonest for the stamp to drift. The incentive does the drifting.
A mortgage on a house in Ohio becomes a line in a portfolio in Oslo.
Pension funds, insurers, sovereign funds. Norway's oil fund, one of the largest pools of money on earth, is a routine buyer of this debt. The fund trusted the stamp. The stamp trusted the fee. The fee trusted the next sale.
The banker who sold the loan suspected it might be weak. He had a number to hit and a mortgage of his own. Naming the game out loud would end his career and change nothing. So he hit the number.