There is a great article by Roger Lowenstein appearing in the Sunday New York Times Magazine: Triple-A Failure. It runs through the process for converting mortgage loans into mortgage securities.
In one example, the author is taken through the rating and structure process for a pool of 2,393 mortgages with a face value of $430 million. All of the loans were sub-prime loans originated in the early spring of 2006 by a non-bank lender. Seventy-five percent of the loans were adjustable-rate.
What I found it staggering was that 43 percent of the loan were no-doc loans. The borrowers did not provide written verification of their income. No-doc loans were originally intended as an alternative loan for small business owners (especially cash businesses) where it is difficult to put together the paperwork for showing their income. But when you here no-doc loans, you should think mortgage fraud.