Technology failed mortgage lenders, the Street and the government-sponsored enterprises that buy their loans in several ways, says Craig Focardi, a research director and retail banking practice manager with Tower Group, in an interview.

Banks should have been originating mortgages electronically to a greater degree, said the representative of the Framingham, MA, consultancy. That would have ensured better loan documentation and fewer cases of lenders being asked to buy back loans from the secondary market when they were found to have made on wrong information, he said. "They were so busy making loans, the technology took decidedly second place," he said.

Meanwhile, Wall St. firms, which package individual mortgages into often arcane investments, such as interest-only strips, slipped up technologically. "Wall St. firms tend to be more traders of assets versus managers of assets," Focardi said, faulting their models with finessing cash flow projections but not questioning that the cash would stop flowing.

Fannie and Freddie, which buy more than half of all U.S. mortgages, were left holding the bag on many that defaulted. They now have combined debts of $1.5 trillion on the $5T in mortgages that they own or guarantee.

After their shares lost almost half of their value on Friday, on shareholder fears of a government takeover, the Federal Reserve stepped in Sunday night with the assurance of inexpensive, emergency funding by giving Fannie and Freddie access to the Fed's Discount Window.