My belief is not that eradicating non recourse will solve the problem and my apologies for not conveying it properly.
I would have to disagree with you on this (eradicating non-recourse part of the statement). We got into this problem with the banks/loan originators feeling that the increasing property value would cover any loss even with the fact that the loans were non-recourse. The property would give them back their money on foreclosure. The lenders made the bad assumption that the current rate of property appreciation would continue unabated. Making loans recourse means that all loans have the potential to return the money to the lender, continuing the problem.
For responsible lending to exist, the lenders have to realize that they can loose their skin in the game, not just the borrower. This way, the lender will be forced to do their due diligence.
No doubt adding curbs, regulation to the lending and institutional side of the equation will be most helpful.
I think this would be the most useful, and on more than just the lending side of the equation. I want to see legal regulations along the lines of series 3 and 7 SEC licenses for real estate agents, brokers and mortgage brokers (same with the disciplinary portion) I would also like to see LTV restrictions on loans much like the margin restrictions for stocks (Though not necessarily at the same %LTV weighting. Houses and stocks are both assets)
