There is plenty of blame to go around.
As home prices soared in recent years, the mortgage industry produced a dazzling array of innovative and riskier ways for borrowers to surmount the affordability problem, especially in California. And a new generation of borrowers seemed ever willing to suspend common sense and overlook the fine print -- adjusting interest rates, prepayment penalties, the consequences of minimum payments -- to buy the house of their dreams, no matter how far beyond their means.
"People know if they agree to these things they'll get the house tomorrow, and that's their only concern," said Raphael Bostic, a former Federal Reserve Board staffer who specializes in real estate and credit at the University of Southern California.
Jeff Lazerson, president of Mortgage Grader in Laguna Niguel, is a critic of lenders he says wrongly direct lower-income buyers to higher-priced loans. Lazerson runs a Web brokerage that he calls a middle ground between overregulation and the industry practices that created a call for crackdowns. His brokerage allows buyers to shop anonymously online for the best interest rates. He said that eliminates the lucrative steering to higher rates that loan officers do based on borrowers' incomes and neighborhoods.
Like many in the mortgage industry, USC's Bostic told state senators recently he doesn't believe its products are "bad."
"It's a product that requires sophisticated users," Bostic said.
But he also cited a growing array of "bad outcomes" that have followed the unprecedented growth in recent years. The future will tell, he said.
"We are in an era where we're about to learn quite a bit," Bostic said.