Several week ago I was watching a cable business news channel and one of the talking heads blamed the current mortgage crises on individuals who "should not have received a mortgage" to buy a home. They went on to blame first time home buyer programs and "low income households" as the root of this financial meltdown. Having created and managed successfully several home buyer programs I knew right away that the finger pointing had started and the blame in fact lie elsewhere. What this pundit did not say was that everyone in the mortgage process other than the buyer had a financial interest in putting people into mortgage programs that are now at the source of the problem we now face. But first some salient facts, first time home buyer programs do not have a default rate higher than that or any other home owner demographic. If you do not believe me check it out for yourself. Second the default rate we are experiencing now is not dramatically higher than what occured in the last major housing recession of the late 1980's . So what is causing the stampede from these otherwise sound investment vehicles of securitized mortgages. Unregulated financial securities known as credit defualt swaps. In the most simpliest terms they are bets that more people will pay their mortgages on time and not default than those that not, and vice versa. The problem is that the default swaps are tied to "unregulated insurance policies" and are held out as gaurantees of the underlying investment security. Also these "gaurantees" are highly levered insurance policies with little cash collateral in place to cover the "bet" if the holder of the guarantee has to cash in on the insurance policy. AIG was the largest seller and holder of credit default swaps. Fannie Mae and Freddie Mac were holders of many of the securuties that had the swaps as guarantees. Several investment banks that have recently fallen on hard times were the market makers of CMO's and the bundles of securities sold to Freddie and Fannie. Thus when the gaurantees turned sour that meant these institutions (Freddie and Fannie) had to pony up the cash and then the race was on to collect on the gaurantees which had in fact vaporized. Here is an article that goes into greater detail  about the credit default swaps and the stampede of elephants that they started.To paraphrase an old African saying when elephants run only the grass gets trampled, in this case the grass is the US taxpayer. http://www.reuters.com/article/newsOne/idUSN1837154020080918?pageNumber=2&virtualBrandChannel=0