The thing is that the bank took that risk when they accepted the house as collateral.
For example, say you think silver is a good risk at $37 bucks and you buy a bunch and next week it goes to $16, that was a risk you took with your eyes wide open.
Those banks loaned money on the value of the houses and it wasn’t the homeowner who made the value fall. It is the risk of doing business and why should the banks be sheltered? They made bad business decisions.
Yes but the homeowners made the decision to buy the home. They had the opportunity to do all the due diligence they wanted. Many cases they didn't want to do the due diligence. The response in the mid 2000’s would have been; “just get the darn loan closed”.
This story I stumbled across perfectly illustrates some of what the mindset was in the bubble:
Any of us who worked in the industry could vouch for this:
http://www.teamten.com/lawrence/writings/buying_a_house_in_san_francisco.html