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Excellent discussion! I am a commercial credit manager for a community bank in Maryland and I have seen the same kind of crazy lending around here. Thankfully, our top management is very conservative in style and will not even think about getting into the "no down, no principal" market.

One significant driver I see for this type of lending is the fact that the decent house in the suburbs that cost $150,000 a couple of years ago is now selling for over $300,000. Wages have not kept up with the increase in housing costs and everyone is trying to figure out how to afford a reasonably sized home.

That's what I think is driving it too.

You couldn't buy a house for a family in our county for $150,000, a 2/1 in a decent neighborhood will run around $180,000. 3/2's start around $225,000 and that's probably a fixer upper 3/2.

I feel sorry for young people trying to get into the home market today because even though rates are low, house prices, plus the cost of property tax and insurance, seem almost unaffordable to someone with a middle class $50,000-70,000 income.

My son is 17, hopefully, things will cool down by the time he's ready to buy a home.

However one of the reasons home prices go up is because of the cheap financing.

It's a catch 22. Easy financing puts food on my table. And I could easily do like some of these guys, just shove these loans down everyone's throat, make a killing, and be jobless in a year.

Or-I could do it the way I have been. Make what works out to still a very good income, while treating people fairly and ethically so that they send me their friends and relatives, and come back to ME when they need something else like an equity loan or refinance, because of the trust and relationship I have built.

You are correct. Here in Silver SPring, MD, you can't buy a town house for $150K.

The house we are renting is $400K and is nothing to look at. The same house 5 years ago went for $200K.

Still, if I could find a decent house to purchase that I could afford, I would. Then, when my wife and I retire in 20-30 years, we could sell it and buy a house in a cheaper market and live off the interest of the remaining money.

One significant driver I see for this type of lending is the fact that the decent house in the suburbs that cost $150,000 a couple of years ago is now selling for over $300,000.

Is it the cost of housing that is the "driver" for "this kind of lending" -- or the other way around?

IOW, isn't it the existence of interest-only mortgages, etc. that encourages the bidding-up of housing? The $60,000/year income family who previously thought they couldn't afford payments on that $300,000 house, now go ahead and buy it (since they "only" have to pay interest).

Another driver of housing cost inflation: The dual income family...

The authors of this book "point to the ferocious bidding war for housing and education that has quietly engulfed America's suburbs."

I.e., it is these two-income families, in their quest to live in suburbs with "good public schools," who have bid up the cost of housing so high.

Ironically, the phenomenon of working mothers has backfired. That second income, which was originally intended to help the family afford a nicer house in a nicer suburb with nicer schools, is now the driving force making that dream impossible (and driving many dual-income families into bankruptcy).