3. Lenders have lots of responsibility in this, but if a law is passed that prevents any loan from being recourse, then it pushes lenders into doing things that are dangerous and likely to lead to losses. Theoretically, lenders can simply close up shop if they disagree with non-recourse loans, but we all know that most won’t, even if it’s the right thing. You can push people, and even banks, into doing thing they wouldn’t otherwise do. If you do push, you are also responsible.[/quote]
Lenders were/are not pushed to do anything dangerous or likely to lead to losses.
They are required only to use realistic appraisal values, and maintain appropriate loan-to-value ratios. This is easy, boring, and the path to a reasonable profit, but not the path to riches.
That is why the charlatans who engineered the real estate bubble, and are responsible for all the damage that it caused, were not satisfied with the arrangement.
