The thing is that the lenders have been able to sell on the mortgages so that someone else owns them when the rates shoot up and they are defaulted upon.

It seems to me that what is needed are mechanisms to prevent the purchasing of mortgage loans by sucker investors (requiring loan issuers to hold the loans, improved ratings, etc) rather than mechanisms to make bad loans a little more unprofitable for the ultimate owner of the loan.

I don't know if making all mortgages more freely callable is a good or bad idea, but I don't think it would have done much to avoid the current crisis. It might have slowed it down a bit and let it keep going a bit longer by allowing some people to stay on the refinancing treadmill a longer.

Absolutely nothing. IF you know how to handle money, you will not fall prey to the vices of these products. But most people are weak-minded, emotional, undisciplined spenders. Only people with good credit scores should get loans with low interest rates.

The only reason that there is a housing crisis is because people with standard and sub-standard credit scores got loans. The lenders only lent out the money to collect the intial fees. The loans were then sold to others as "secure" investments. It was all a pyramid scheme.

But in addition, I do think that something has to be done about the ratings services (Moodys, etc.) that rated these CDOs as AAA despite the fact that they were backed up by subprime mortgages. I don't care how you slice and dice these loans -- the fact remains that they don't represent AAA bonds, because AAA should mean virtually no risk -- and lower returns. This paper was not "no risk", and the ratings services knew it....