When I was house-hunting after the crash, I noticed that the loan history of most of the short sales (underwater mortgages) I looked at followed the same pattern:
- Buy house with minimal down payment. - Over 5-10 years or so as the market climbed, refinance with ever-larger cash-out mortgages. - After the crash, apply for short sale, forcing the bank to take a loss.
So, for example, I might see a house with $750k loan on short sale for $350k. But on closer inspection of the history, find that they put $15k down on a $250k house, then pocketed $500k in cash-outs. Sure, they "lost their home", but at the end of the day it feels more like bank robbery to me.
Now they probably didn't have all that cash sitting in a bank somewhere. It was probably all spent on one thing or another. But they still got the advantage of spending that $500k. (Not necessarily wisely. The one I remember details of lost both his house and his wife because he blew it all on racing toys.)
Yes, there were certainly plenty of people who were legitimately burned in that whole mess. I'm just mentioning that from what I saw, more often than not there were huge cash-outs involved.