It was the CDO's that spaced the hurt out and let it bloom into more than it should have. CDO = Consolidated Debt Obligations, another word for bundling mortgages into packages, then selling them to REIT's (Real Estate Investment Trusts) among others, and thereby so extending who was actually supposed to be in charge of the mortgages (the banks were still supposed to be doing the servicing of the loans) that when the fertilizer hit the fan, all sides tried to pretend they weren't to blame. Meanwhile all those organizations who hadn't originated the loans and weren't even in the loan business per se, were left holding a lot of paper that began to become worth less and less each day, and mortgages not being paid meant no money coming in to them, and then the courts properly asking who actually owned the loans, so a huge mess clogged the system. The end result is people who wanted to make things good, or other arrangements couldn't, so eventually even those began to live in the homes without paying and putting money aside for when they had to leave since nothing could be accomplished by anyone.
While the Clinton years created the subprime loan system, the investment banks wanting a cut of that action, buying and bundling the mortages so they could issue securities on them, complicated the entire situation. The division that previously existed had not just been removed but was stomped on.
What could have been done to correct it? First end the CDO's and then pass some laws requiring the ones who originated or were servicing the loans to buy them back at current market values, or face losing their licenses. Those that couldn't or went broke to be shut down, the govt take such loans and then put someone in charge of the process themselves, hopefully with an "interest only" service period for those who wanted to keep their homes, till all could be sorted. It took way too long for anyone to do anything to try and clean up the mess and add to that the stalling and deliberate hiding of the CDO debt in overseas accounts rather than investment banks showing how badly they'd been hurt.
What's happening now? The administration and Federal Reserve are still playing the same game of goosing up the stock market, trying to keep a brave face on it all, while America decays at the foundation underneath it all.