Final answer:
Mortgage lenders did not thoroughly check borrower information because of the adoption of securitization, which allowed them to off-load the risks to investors, and a misplaced confidence in the continuous appreciation of housing prices.
Step-by-step explanation:
During the period from 2000 to 2007, mortgage lenders frequently did not check the information provided by potential borrowers due to a shift in banking practices and regulations. Previously, lenders had a direct stake in the repayment of the mortgages they issued.
However, the securitization of mortgages allowed them to sell these loans as bonds, transferring the risk away from themselves to investors. This practice was facilitated by changes in finance and banking laws that encouraged securitization. Lenders were then incentivized to issue more loans, including to those with poor credit, as they could quickly off-load these loans and the attendant risks. Moreover, during this time, there was a widely held belief in the continuous appreciation of housing prices, underpinning the assumption that mortgages were secure investments regardless of the borrower's ability to repay.
Mortgage-backed securities (MBS) became attractive to investors looking for steady income, assuming that borrowers would continue making payments. The rating agencies largely failed to accurately assess the risk of these securities, often giving them high-quality ratings. The culmination of these practices—lax lending standards, aggressive securitization, overconfidence in housing markets, erroneous risk ratings, and insufficient government oversight—contributed to the economic vulnerabilities that led to the 2008-2009 Great Recession.