Here's a reasonable explanation of what's gone wrong in the housing market and why it's happpened.
Liars’ loans
The underlying cause of the current global financial crisis is a system in which there’s little personal responsibility for lending decisions
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In the US, some half a million mortgage brokers have been incentivised to “sell” mortgages to potential homebuyers.
They don’t work for the providers of the loans. They are paid commissions for the volume of mortgages they arrange. So, of course, they try to arrange as many mortgages as they can, not minding the consequences.
If the customer wants to borrow more than he or she can really afford, then that’s no problem, thanks to a wonderful innovation called “stated income, stated assets” loans.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/It's well worth reading the whole article.