I might make a few mistakes here, I haven't explained this in a few years and I'm tired. Still, I'll try to explain it. This is probably really lengthy, but it's tough to concisely explain this subject.

Banks are corporations, heads of banks are under constant pressure to continue pooping profits in order to keep their jobs. Stability was a minimal factor for them as they were guaranteed their retirements even if the banks failed, and they would lose their jobs if they were pooping losses against their competitors profits.

The stability of banking was threatened because the value in mortgages was clearly in collecting interest on them, rather it was in selling off packages of mortgages. Collateralized Debt Obligations (CDOs) are huge packages of things like mortgages that are put together by financial institutions that guarantee a steady flow of cash from mortgage payments and other payments on loans. They also insure these, so if someone defaults on their mortgage, they get a payout form that - a specific type of insurance created by AIG Financial Products, a Credit Default Swap (CDS) was insurance on a transaction that could be purchased by anyone on any sort of transaction, even if they weren't involved in it. You have a mortgage and own a home? I could buy a CDS so I would get an insurance payout if you defaulted on your mortgage.

The idea behind investment banking and consumer lending is that banks are a middle man between the Federal Reserve and consumers who want to borrow money. A bank might be able to borrow money at 0% interest (i.e. now) and lend it out to consumers for a few percent interest and make their money that way. Because they are more or less guaranteed income through that, the Fed allows them to borrow more money than they have, which is called "levering". Since it was unlikely that a large portion of consumers would default on their credit, banks were allowed a certain amount of leverage - investing more money than they had on the assumption that they didn't need to pay it out. A bank could have millions in deposits and clearly expect to pay out more than 10% of them at any given time, so they can spend those deposits on investments that will return interest.

Then it gets confusing. All of these transactions were insured, and commercial banks, investment banks, and financial insurance companies were allowed to become the same entity. clearly only did they insure their own transactions in case the borrowers defaulted, they also owned CDSs on every other bank's transactions, so if other banks failed, they were owed money on the deposits. Things were insured multiple times by insurance companies that were the same entity as banks, so when one loan was defaulted on, two others were paid in full for the loan because they purchased CDSs on it. Then they declared the guarantees of money coming in from mortgages and loans as assets and borrowed more money against that. For purposes of stability, they were required to have the capital to back up these loans around a 12:1 ratio, while more stable guarantees of money like treasury bonds could be levered against at 18:1

Then asset and insurance trading was modernized and everything was traded on electronic exchanges that were heavily controlled by the players involved in the trading game. While making this request to the Senate Banking Committee, Henry Paulson also "urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm."
Here is his testimony, see the last section for what I'm referring to: http://banking.senate.gov/00_02hrg/022900/paulson.htm

What this meant was the removal of leverage caps for investment banks with more than one billion dollars in assets, based on the good faith that they made that much money through safe and reliable practices. Electronic exchanges took the final step towards eliminating real currency from the banks transactions, which made it convenient to lever at an unsafe ratio. A bank could claim assets of $1b and poop 2% profits on that, pay out $10m in dividends, and they're golden and they will keep money coming in. Through the complex system of borrowing against far more money than they had, and they could now take on even more liabilities to ensure continuous dividend payouts and investor confidence. Everything was insured, so if anything went wrong, it would be paid out with little adverse consequences to them.

What happens when you run out of qualified buyers to lend money to? The cost of homes is going up, but you can take up predatory lending, where you can lend at half the per dollar rate and lend out twice as much just to get more mortgages. You have 1000 people with $500k mortgages, you sell off that $500m bundle of debt that assumes it will be paid off, it is backed by the properties, and whoever you sold that package of mortgages to is guaranteeing 2% dividends from interest payments to their shareholders, who are happy that they are getting a return on the money they invested for now. Both you and the company you sold those mortgages to have CDSs on those mortgages so if they fail, you each get $500m - insurance companies balance this risk with how much they ask you to pay. The cycle continues of people paying interest on borrowed money, that money being paid out where money needs to be paid out, and the likelihood of one of every twelve homeowners defaulting and needing to have those payouts is very unlikely.

The breaking point in moving to predatory lending was when banks could no longer find enough people who could reliably pay their mortgages and loans. At that point, you know exactly how much money you will be bringing in, and ups and downs of the market are bound to force you to report losses at times, which is unacceptable if other companies are doing better than you. You can continue to poop profits and literally move imaginary money around if you deceive consumers so they believe they can afford to buy homes that they really can't afford to pay for. The value of these homes continues rising because every company is competing for the same people. When this finally crashes, there isn't enough demand to sustain the prices that were being demanded of homes. The people taking the mortgages can't be abstained of responsibility, but they also generally operated under an assumption that this was actually a fair game, since the average homeowner doesn't understand how investment banking works.

The problem came when rather than a safe 12:1 ratio of debt, the big five investment banks were up around 30:1 - in their final months, some of them owed more than 50 times what they could pay out. While normal market fluctuation isn't going to make jumps of 8-10%, when you're talking about 2-3%, you are in serious trouble. The banks that took on even more risk turned out to be the ones that survived though - those who went under earlier died, those who were able to hold out ended up getting bailed out because they were too big to fail. The best example of this is how the AIG Financial Products division threatened to push the entire insurance corporation under, which insured nearly everything - more than half of the commercial airliners in the US could clearly legally fly if they were clearly insured by an agency with a credit rating of a certain level (I think AA).

tl;dr - Consumers assumed their mortgages were offered in a fair market where something completely unsustainable and disastrous would clearly be allowed to exist, massive financial companies amassed so much power that they were able to undermine government regulation in order to further their business interests.