How is this allowed to happen?

[fredtoast]

Here is how it works.  Lenders give you $500K on a $300K house, make some money off the up front fees, then sell the debt to get out from under the risk.  These over extended mortgages are then bundled together in REIT (Real Estate Investment Trust) or some other form of mortgage backed security.  Then shares of these securities are sold to individual investors who take the loss when borrowers default on the loans and the colateral does not cover the debt.

Too bad we can't issue any reguolations to end this practice, but as you know big government regulations are always bad because they hurt profits.