The 2004 to 2008 run up was primarily due to a "no one cares" environment.
Realtors would ask "What's your score", not "Is this affordable for you?", Buyers would say "My lender says it's no problem for a minimum wage worker to buy this $600,000 home in Menifee because no one cares about qualifying any more".
Borrowers would ask "What income should I put on the application" and Lenders would say "Put whatever is needed to qualify. No one cares.".
Lenders would tell borrowers that an Option ARM might "go negative" and the balance might rise. Homeowners would say "Meh, appreciation will take care of that, besides, no one cares.... I can always refinance..."
Absolutely everyone knew what was going on. Don't believe the stories about how "I was tricked" or "I wasn't told about X, Y, or Z" and "those big banks were to blame". It was willful ignorance by all parties in the transaction. Lenders had to provide to customers multiple disclosures for their loan terms with all the potential problems laid out in black and white. There were 3 days to exercise a borrower's right to cancel a refinance giving plenty of time to review what they were getting into. Closing documents were in the low 100 pages in length to consider before funding, yet none were read. To think that a $4,000 per month income can support a $3,000 payment alone was a huge red flag for home buyer or refinance client in the day. Did that stop anyone? Hardly - because no one cared enough to question why the application says $14,000 of income when it really was $4,000, or how it was possible to get a $1,000 mortgage payment for a $1,000,000 loan amount.
The worst part of that whole era from my perspective was the persistent chant by lenders, realtors, and borrowers: "You can always refinance out of it". No... Sorry to say, but you cannot. Once the music stopped, there weren't enough chairs to park ones behind on. Everything deconstructed from there. What's different today is the real estate industry is too big to fail. Forbearances are one example, but so are foreclosure and eviction moratoriums. In 2007-2011, consequences for poor judgement were real. Today, the consequences for lack of planning and saving have become the burden now of the Federal Government, and the bill just will never come due.
In many ways the forbearance and eviction moratoriums were the right response but solely within the context of the Pandemic. With employment in a freefall and incomes vanishing due only to an outside event not caused by the individual, the last thing American society needed was a tsunami of newly unhoused people. Now that American society has accepted forbearance and moratoriums as "normal", paying bills is becoming less and less of an obligation and more like a long term can kicking. Just look at what has been done with Student Loans (an ongoing moratorium) and what's ahead (outright forgiveness of debt).
Just as in 2007 when the music ran out and seating became scarce for those dancing throughout those "good times", eventually the music being played today will stop. What then? We'll see....
