Fueled by shoddy lending practices and nonexistent regulation, the Sacramento area's out-of-control housing market contributed greatly to the financial crisis of 2008, witnesses told an investigative panel Thursday.

At a daylong Sacramento hearing of the Financial Crisis Inquiry Commission – a group appointed by Congress to probe the causes of the meltdown – economists, mortgage consultants, borrowers and prosecutors detailed the Central Valley's role in the financial train wreck.

Sacramento borrowers took out loans they didn't understand and had no chance of repaying. The loans were bundled by Wall Street financiers into investment securities that collapsed. Regulators at all levels were clueless.

"The whole system became prone to widespread corruption," said commission Chairman Phil Angelides, the former California state treasurer.

He said mortgages made in Sacramento and other communities "became the beating heart of a financial monster." Investment banks used "some of Sacramento's mortgages as poker chips" in a scheme to gamble on the housing market, he said.

Thomas Putnam, of Putnam Housing Finance Consulting in Sacramento, said the capital was particularly vulnerable to the housing bubble. The region was inundated with younger, less affluent Bay Area homebuyers looking for an affordable place to live, he said. This fueled the demand for exotic, low-interest loans.

The market crash has devastated the Sacramento economy. Some 43 percent of homes in the area are "underwater," meaning they're worth less than their loans, said economist Mark Fleming of market researcher CoreLogic. That's about twice as bad as the U.S. average, he said.

The process of securitizing the loans – packaging them into investment products – worsened the problem because the original lenders didn't have to fret about the loan going bad, experts said.

"It was somebody else's problem," Putnam said.

Karen Mann, a real estate appraiser from Discovery Bay, said lenders pressured her peers to approve shaky home appraisals in order to keep loans flowing. Just about everyone involved thought they wouldn't get caught by regulators.

The Angelides commission has spent the past year probing the financial crisis, leading up to a major report to Congress scheduled for mid-December.

Most of its public work has consisted of hearings in Washington and New York. It has also held "field hearings" in four hard-hit communities: Bakersfield, Las Vegas, Miami and finally Sacramento.

The Sacramento hearing, held at the hearing room of the state Department of Education near the Capitol, drew a crowd of around 80.

Angelides, who lives in Sacramento, said the field hearings yielded testimony not available to the commission in New York or Washington.

"Until today, I was not aware of the rollback of appraisal standards," he said in an interview.

U.S. Attorney Benjamin Wagner, the top federal prosecutor in Sacramento, told the panel the dramatic relaxation of lending standards has made it harder to crack down on mortgage fraud.

"It makes it difficult to separate out the true criminals from the people just operating in the Wild West," he said.

Kevin Stein of the California Reinvestment Coalition, an advocate for low-income borrowers, said lenders preyed on minorities and non-English speakers, giving them loans that were likely to fail. The coalition's complaints to federal regulators were ignored, he said.

At the same time, conservative lenders found themselves losing market share to firms willing to peddle easy-money loans to borrowers.

"Risky lending drives out prudent lending," said Henry Wirz, president of Sacramento's SAFE Credit Union.

Despite federal and state loan modification programs, many borrowers are still losing their homes. Pam Canada, of the NeighborWorks nonprofit advocacy group in Sacramento, said only about 20 percent of her clients successfully rework their mortgages.

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