The current mortgage crisis reflects many larger changes in the way Americans buy and finance their homes. Increased real estate ties to the stock market have made home loans more available and at the same time more volatile.

Explaining exactly how the real estate industry evolved from a private deal with local banks to a multi-national series of loans, securities and hedge funds is challenging. An article in last Sunday&39;s New York Times Magazine called "Subprime Time" does an excellent job of explaining the shift:

"The absence of scrutiny on Wall Street had a profound effect on mortgage origination. As mortgage bankers discovered that investors would buy virtually any loan whatsoever, they naturally lowered their standards. What difference whether a loan was sound if you could flip it in 48 hours? The market thus corrupted, it only wanted for the right circumstances to implode.

"And over the last few years, as Robert Barbera, the chief economist at the investment advisory firm ITG, observed, the Federal Reserve took short-term interest rates from 1 percent to 5 1/4 percent. This raised mortgage rates and put home buyers at risk of being priced out of the market. But bankers lent to them anyway, offering, in effect, “junk mortgages” — risky loans with low teaser rates (and much higher rates later), as well as other deviations from sound finance.

"Lenders and borrowers alike knew that such loans were dicey; they were counting on the borrowers to refinance — which, as long as home prices kept rising, was a cinch. Naturally, when prices stopped rising, the music stopped."

Click here to read the complete article on how the mortgage industry has changed.

Emily Davidson – Credit.com&39;s Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.