What does refinancing mean?

Refinancing a mortgage is the process of re-evaluating the value of your home, to receive money, in the form of an addition to the mortgage, from the homes equity.
Before the financial crises, people would constantly refinance their mortgage to receive money, because house prices kept going up. People would get their house's value re-evaluated, and then receive money from their houses equity.
However when the housing bubble burst, house prices plummeted. So when people attempted to refinance their mortgage, not only did they receive a higher interest rate, but they were unable to get any money from their house, since prices had dropped. The issue now was that people had mortgages worth more than their house. As a result people could not pay off their loans, and thus foreclosures began to increase

What is the securitization of mortgages?

To make things more liquid (easy to sell), securitization is a tool used by many financial institutions, including banks. The process of securitization involves pooling together many mortgages, and then selling the debt as a bond to other companies and etc. This kind of bond can be sold and resold, thus it is often hard to trace them back to an origin. The problem with the securitized subprime mortgages, is that as many of the mortgage-payers defaulted on payments, their houses we'rent worth as much as before, thus the securities that were sold, were now not worth much either

What is systemic risk?

The collapse of the entire financial system fails together. This was evident in the financial crisis. Since all the CDO's and securitized investments were spread among many different companies and individuals, a lot of the financial system was interconnected. So when the houseing bubble burst and the mortgages began to fail, everything followed with it

what if due diligence doesn't exist in the situation? in some cases, the companies didn't know they were committing a "crime" thus they didn't take any precautions. Would you just prosecute on the other 2 criteria?