Real simple. If I own a house that I rent out and have no intention of living in, that would be a commercial residential home.
That's still absolutely nothing like taking numbers of such properties, dividing them up into shares, and selling them as securities. Dig?
No, what would happen is the lender would sell off that loan into a CMBS ( Commerical Mortgage Back Security). That CMBS would still be tranched out based on the risks of the asset pool ( it's not divided into shares ). And those tranches would be bought by any number of clients.
You seem to think the concept of Asset Backed Securities lead to the housing collapse. What lead to the housing collapse was simply banks giving loans they shouldn't have. Requiring 40% cash down on housing loans would have been another easy way to avoid all the problems.
That's true. But there's more to it than that. The reason they made these risky loans was that they didn't have any incentive to properly vet the applications and in fact they had an incentive to make as many loans as possible. For each loan they made, they could sell it into a MBS and also receive a piece of the monthly payments to administer the mortgage.
I'm not saying that you shouldn't blame the lenders (or some of the borrowers), but in general, I think you should expect that if someone can make money by doing X, they'll do X. People generally don't leave money lying on the table.
What created these bad dynamics, was that there was a demand for mortgages due to the misvaluation of these MBSs. The top tranches were rated as AAA, which made them very appealing to various fund managers who were required to invest a percentage of their funds in AAA rated securities (which have lower return than other investments).
The reason these things got rated as AAA was the model used to value them was stupid. It essentially boils down to, there hasn't been a very high correlation of defaults in the past, therefore there will not be a high correlation of defaults in the future. That model then of course failed when it couldn't predict something that had not been observed, that there can be a failure mode where the correlation of defaults increases overnight.
So the main two issues are that the people who could have prevented this had no incentive to and current financial theory thinks that it can value a bunch of securities using a combination of the central limit theorem and rainbows. I can suggest a solution for the former problem: structure MBS contracts so that the initial lender has some liability for the difference between the initial loan price and the price at foreclosure auction and institute some sort of reserve requirements to cover this. However, I have no idea what to do about the latter problem. I think that right now, the financial world is trying to put hard numbers on too many things that are by their nature gooey and squishy.