Less fraud than you might think. It was more the model where house values would increase or level off not crash, which meant worst case was recovering X% vs 100+% where x% would still cover the outstanding loan. Which allows you to slice and dice very low risks loan value from junk, not because most people are going to pay back, but because the houses have high inherent value.
Their scapegoat was the model. In reality they could probably make a model that gave whatever rating the client desired. That is the fraud, they weren't working in the interest of the investors they were working in the interests of the investment bankers.
In any organization whoever pays the bills tends to get what they value - because they can decide to pay someone else if they feel they're not getting it. All the "arms-length", "neutral" stuff - even if truly well intentioned - get impacted by whatever the payer wants.
In case of mortgage bonds, the bill payers were bond creators who wanted to get the loans off their books as quickly as possible. The buyers should really know better but they too were largely managers whose salary was paid
on % of assets basis with no real downside impact on their own wealth.
