Show me in the documents where the value of the house was guaranteed never to go down. The lender is not responsible for the value of the collateral increasing or decreasing.
I guarantee you that if the banks ever thought the collateral would go down and if they had to own the paper themselves...
20% down would be a minimum requirement.
But the lender knows that they're assuming risk in the case of default. They even require borrowers to purchase mortgage insurance to help mitigate that risk!
Default is a cost of doing business. If the banks don't like defaults, they could try a little underwriting for a change.
Look, it's just business. The borrower isn't married to the lender; they're doing business together. Yes, these borrowers made a poor decision to buy in an overvalued market. But the lenders made a poor decision to lend, with the full knowledge that they could be on the hook. It makes no sense to say the borrowers have some moral obligation to bail out the banks' poor decisions as well as their own.