Regulators were not MIA, they were all too present, forcing banks to extend risky loans by threatening anti-redlining lawsuits.
The non-existent common sense was the premise that you shouldn't loan to people who can't pay.
This common sense got suspended by government/NGO fiat because many of those who couldn't pay were minorities. No securitization hijinks could have happened if those mortgages hadn't been forced into the system in the first place.
It's ridiculous, because CRA loans were a tiny fraction of delinquent loans, they didn't go bad at meaningfully higher rates, the non-bank mortgage lenders like New Century that made the worst loans weren't covered by the CRA, something like 15% of loans over $1m were delinquent.
It's beside the point, because a well-designed financial system wouldn't blow up insurance companies, S&Ls, brokers, all because banks are required/encouraged to make a small percentage of their loans in underserved areas.
It's called confirmation bias, humans can and will believe what makes them comfortable.
The non-existent common sense was the premise that you shouldn't loan to people who can't pay.
This common sense got suspended by government/NGO fiat because many of those who couldn't pay were minorities. No securitization hijinks could have happened if those mortgages hadn't been forced into the system in the first place.