The financial troubles are the direct result of a housing boom and bust. The simple (but false) belief that housing prices would appreciate at something like 10% per year for a long time was at the root of many bad lending, borrowing and investing decisions.
"Housing always goes up. Hallelujah!"
If you believe that housing values will appreciate at 10% per year you will:
1. Use your house as an ATM by borrowing against its value
2. Sell your home and use the profit as a down payment on an even bigger home
3. Become a mortgage broker or real estate agent
4. Raise a city's operating budget to take advantage of increased property tax revenues
as a result of increasing home values (It's a lot easier to increase government expenses than take things away from people later)
5. a. Make loans to people with weak credit profiles
b. Buy a home you cannot reasonably expect to payoff
6. a. Make loans with no down payment required (In just a few years the appreciation will cover the missing down payment. Yeah, right. haha
b. Buy a home with no down payment required
7. a. Buy homes and condos for the purpose of flipping. Buy it now and sell it in 2 years for a substantial profit (all that leverage!)
b. Give loans to "investors" that then use that house as collateral to get other loans and so on. Hello, Mr. Ponzi
8. a. Lie about one's income in order to secure a loan
b. Lend to people who don't document their income. Why worry? The worse thing is you repo a home which worth more than what the buyer bought it for.
oh, I could go on but ...
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