The banks(lenders) are not the first cause. They merely play by the rules the Fed proposes and the Congress rubber stamps. That's my understanding anyhow.

The first cause is the Fed rewriting the rules of the game. In the 90's I believe. Thereby allowing such creative contrivances as interest only loans, next to nothing down payments and various other vehicles that facilitated the Congressional desire to put the unqualified into the home ownership club.

Wishful thinking and avarice took their predictable course after that.

-For the Fed PHD's the outcome was perfectly predictable. =Many loan officer's probably saw the writing on the wall. (My HS educated wife did almost 6 years ago, simply on the basis of the content of the ubiquitous advertisements during the refinancing fervor of that period.) -It's likely more Real Estate Brokers knew the eventual outcome than members of Congress. -Expectant home owners were just living the dream the rules allowed their real estate agents and loan officers to encourage the greater portion to seize.

Several astute points figure into the last: lack of economic education(& generally of the general population) and unrestrained avarice the entire length of this particular economic food chain.

And now there will be a correction of major proportions, and further consolidation, up to and including further nationalization of our markets. Not good. Fannie and Freddie, which were essential government institutions before, GSE's, should have been allowed to disappear, permanently.

good luck, it's going to get worse before the economic saviour appears.