You are all missing the point; even if you kept your nose clean and only made loans to people with 800 credit scores with 20% down, the underlying value of the assets that you lent on have been severely affected by your competitors.
As a bank, you may think that the $400,000 that you lent on a $500,000 home is still safe until Countrywide forforecloses (because they lent 125% of the appraised value) on the house next door and puts it back on the market for $350,000.
That’s true at this point. So as more REOs come to market, that will give more and more debtors reasons to walk, even “prime” debtors … yikes.