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I know what you mean. Money is cheap at under 5% for home buyers...but try to get it. I've heard that Chase, (bought WAMU at big discount) is phone calling good customers offering incredible deals on refi's. Why? No risk but they are making money on properties that have equity and the borrowers have never missed a payment.

When prices are going up in an inflating bubble market, it always seems like there is no risk because price appreciation will take care of any mistakes. Everyone thinks they'll get out before the music stops.  Therefore, the name of the game at that point is just do as much volume as possible and don't worry about risk because appreciation will take care of it.

When the bubble bursts and everyone comes to their senses, basic underwriting criteria have to be followed.  You have to worry about a person's ability to actually earn money to actually pay off the loan.  Appreciation can't bail you out.  Refinancing in the future won't bail you out.  People actually have to earn real money to pay down the loan. In this economy, the risk to a borrowers income stream is pretty big. 

If you had a million dollars of your own money to lend out right now, what would be your criteria?  I know I certainly wouldn't be lending my money out at only 5% and I would want at least 20% down.

Momentum.  When the market is rising, people and companies expect it to rise more.  Same when it is falling... 

Hi John, Bill A. said it best. "Heads we win, Tails you lose ".  No, you are not missing something. No you are not crazy. We used to live  in at least somewhat reasonable times. They are gone and there isn't much that makes sense today. And beware, if you happen find  the thing that does makes sense today, tomorrow it will change and not make sense any longer. We live in amazing times .

I work for a mortgage banker and I tend to look at it practically.  There has been a tightening of underwriting criteria to be sure, but we are still approving mortgage applications.  The biggest obstacle is time.  With HVCC and the new disclosure rules, it lengthens and complicates the approval process.

Jon, the values are irrelevent.  When prices are rising, people think they will continue to rise forever.  When they are falling, people think they will fall forever...  And then somebody breaks the cycle... bubble bursts or the buying tide is unleashed. 

It isn't about the value, but the perception.

Jon I agree with you and find mortgage decisions at this current time so frustrating.  I have a client trying to refinance right now (to lower his rate) who has been denied because the bank's appraiser drove by and said the house is not worth re-financing.  Now I know this house and from outside the place looks beautiful.  Inside is just as nice.  Since when are these decisions made final by a simple drive by?  I also know the value by comps and what he owes on his mortgage.