Professor Ferreira seems to be ignorant of the banking mechanisms involved. There is a direct link between sub-prime loan underwriting and prime loan underwriting:
1. Mortgage loans are packaged by retail banks into blocks of loans. These banks need to be able to sell them on to Wall Street investors if the retail banks are to continue to writing more mortgages without breaking their limits.
2. In a block of loans, it is not known who will default, so using a special financial contract (a CDO) an investor can 'buy the first 10 defaulting loans', say, in the block. In return they get a fat coupon, and of course, they pray no-one does default. These risky loan-block 'slices' (or 'tranches') are called subprime.
3. What remains in the block are less risky slices, called prime.
4. It's easy to get investors to buy the prime debt, because it's almost risk free money, especially to institutional players. So limit to lending had always been 'who wants to buy the shit at the bottom', the subprime debt.
5. Ratings agencies colluded with banks to mislead investors about the riskiness of the subprime tranches. They marked the debt as AAA when it should have been far lower. Investors across the world trusted the ratings agencies, so these AAA securities with fat coupons flew off the shelves into funds that were managed by semi-corrupt custodians who were getting paid short-term bonuses. Banks in Iceland, Germany, Greece, etc.
6. Because the hardest to shift debt was no longer hard to shift, the mortgage lenders sought more people to write mortgages for, and they lowered their lending standards across the board. Whether they lent to high credit scoring individuals or not, they impaired their own lending standards by leveraging people beyond their means. This leverage is why the housing bubble's bursting caused such a country-wide crisis.
7. The Professor seems to think subprime lending refers to lending between the bank and the low credit grade home buyers. However, when we say the housing crisis was caused by sub-prime lenders, we are talking about the institutional players who defrauded investors about the riskiness of these subprime CDO tranches, since this was the root cause of excessive lending to all levels of home buyer.