Stuck in a subprime loan
"There's a lot of borrowers who are going to be stuck in loans they can't get out of," Lazerson says. If they can't afford the higher loan payments and can't refinance, they'll end up losing their homes to foreclosure.

For at least a year, analysts have warned that the loose lending standards of the past few years would result in a spike in foreclosures. That's starting to happen among subprime borrowers.

"Within the last five years, there have been virtually no underwriting standards at all," Lazerson says. There used to be a joke that you could get a mortgage if your breath could fog a mirror. Then, Lazerson says, "in the last five years, you could be dead and get a loan. It was ridiculous. We had people with zero down and bad credit and getting loans."

Brokers can't believe how lax the subprime lending requirements were just a short time ago. Investors were eager to buy mortgages, especially high-rate, risky home loans with prepayment penalties, because they were profitable. So investors pushed loan officers and mortgage brokers to find borrowers with lousy credit. Brokers and loan officers were paid handsomely -- practically bribed -- for delivering subprime borrowers. 

Free to do stupid things
"I think it's worried a lot of people in the mortgage business," Cruise says. "We kind of hold our nose and close our eyes and originate these loans." He says his students sometimes wonder aloud why the loans they are originating are legal.

"So long as these loans are legal, we'll continue to sell them," Cruise says. "Yeah, we do cringe. But so long as people qualify for the loans and they want them -- we don't even have an obligation to educate people on the risks of these loans, although some of us do. You still have the freedom to do things that are stupid in America. Unfortunately, many people are exercising that freedom with abandon."