Don't you think perhaps some of the "tough guidelines" should remain in place? Of dozens, scores of people I know own uptown condos in Charlotte, so so very many have openly sat around and chatted about their "piggyback loans." I was sitting around at a complex BBQ/pool party, and it was as though every single neighbor of mine had done that to obtain financing. Two or three fellas were bragging about how they "knew this great accountant who does mortgages on the side" and got them 103%, even 105% financing -- so that they didn't even need to come to the table with money for closing costs -- or in the case of one guy: 0 down, 0 at closing, and the realtors finagled the sale price so he could get a few extra thousand dollars from the mortgage to buy furniture!!
My one very close friend who actually put 10% down on his place, had a HELOC... it was one of those things he got an offer from Suntrust in the mail for their "Access 3" option equity line. During those "exuberant" days, he kept getting letters stating that they raised his equity line of credit. Between what he had put down, plus the rampantly price appreciation, I remember him bragging to me that they had bumped his equity line up to something like $60,000. Boom - all of a sudden he gets laid off from his job - and the next week, his 12-year old car died. Thousands to fix. What does he do? He uses one of those "equity line checks" and buys a $40k car with it! Now of course, he couldn't come close to selling his condo and paying off both loans, but he's still unemployed, works odd jobs, bartends once in a while too...
That is the kind of irrational exuberance I am talking about -- and I feel sorry for those people who have 8, 10, even 12% interest rates on the second mortgage and thus haven't even begun to chip away at their principal yet!
Those are the sort of systemic problems that caused us to get into this mess in the first place. Think: Casey Serin, the 20-something kid in Cali who ran the blog IamFacingForeclosure.com -- the site is no longer his (he sold the domain name to pay some legal fees) but there is an entire Wiki site dedicated to him: The CaseyPedia Wiki
Sadly, I know a handful of people in Charlotte who have done exactly what he has: early twenties, use the equity from house 1 to invest in house 2, use the combined equity to buy house #3 (and then take more money out to refurb house #3 which is a heavily damaged foreclosure they are going to try and flip), and on and on. One girl friend (not MY girlfriend) got so caught up doing that, she now LIVES in the half-fixed up/not quite in such an "up and coming neighborhood after all" house because she couldn't flip it. Sad thing is: she ISN'T 22 years old; she's nearly 40, has an MBA and another Master's degree, works for Microsoft off Arrowood... but has at least one part time job to help pay these mortgages on the other properties -- good for her, a lot of people (like what is happening now in California) would simply walk away from all of them, take the hit and move in with mommy and daddy until their credit score recovered, 3-7 years later.
I fully recognize and appreciate the "American Dream of Homeownership" I really do (and I own my home). But too sadly it was greed and a LOT of young, financially unsophisticated (and older, financially unsophisticated people) who fueled this price appreciation. What happened to the good old days of saving up and putting 20% down???