Wholesale lenders competed aggressively for market share by undercutting the banks and creating sexy new mortgage products like home-equity, interest-only and low-documentation loans.
Layering of risk means the borrowers courted by these lenders had multiple characteristics that would put them at high risk for default, including no down payment, no documentation of income or assets, low credit scores and second mortgage in lieu of a down payment.
That is, tax relief for casualty losses generally are limited to those with the unfortunate confluence of poor insurance coverage, low adjusted gross income (AGI), and good documentation.