"It was a new type of lending focusing on riskier borrowers who didn’t have money for the standard 20% down payment, who didn’t have a history of stable employment, or who didn’t have a high enough credit score to apply for conventional standard loans, so-called “prime” loans. Lenders became quite creative in terms of finding ways to provide loans to those individuals, to those families."

We bought a house in late 2006/early 2007. We had money for 20% down; a history of stable, highly paid employment; and a pair of high credit scores. We had to twist the goddamn lender's arm to get a standard, non-whacked-ass "creative" loan.

It was obvious in mid-2005 that they were writing unsustainable loans. It was obvious that as soon as the business cycle had any kind of hiccup, the wheels were going to start coming off.

"Ferreira: Yes. Let’s split the housing market into four major components. There’s the prime sector. That’s always around 60% of the market. That’s the bulk of the mortgage market. There are the governmental loans — HUD, FHA and VA — which are about 10% to 15% of the market. Then there’s sub-prime. Sub-prime started in the mid-1990s with about 5% to 10% of the market. And that increased to 20% — big, but a third the size of the prime sector. And then you have all-cash transactions: investors or wealthy people. And that’s about 10% of the market. So during the whole time period, even at the height of the housing boom, sub-prime was never more than 20% of the market. And the prime sector was 60% or more and increasing."

The sub-prime market was, as expected, the first up against the wall when the wheels started coming off. And the result was that 20% of the market, rather than 5-10%, were forced to sell quickly or be foreclosed. 20% of the market is going to have a bigger effect on overall prices than 5-10%.

On the other hand, that doesn't let prime lenders off the hook, since everyone was pushing bigger loans that overextended more borrowers, as in, "[T]he phenomenon was widespread. It was not concentrated solely on the sub-prime sector."

But this is where Ferriera starts going off the rails.

"More equity helps. Having a higher down payment helps."

No, having lower payments helps. It doesn't matter whether you've got 20% or 0% if you physically cannot make the payments. Lenders were writing loans that overextended borrowers.

"So around 2008 and 2009, in certain markets, you had about 10% to 20% of the stock of homes being foreclosed. Those markets were the weaker markets, such as inland California, areas like Fresno and Modesto, or smaller markets in Florida, for example."

I seem to recall it being the stronger markets, like Las Vegas. But anyway...

"Knowledge@Wharton: [...] I guess, in some respects, then, we still don’t have a full, true understanding about housing cycles and how they affect the markets, or the potential of the U.S. having another bubble down the road."

We may not have a full understanding, but we do have, and did have, enough of an understanding that you cannot lend more money to people than they can be expected to pay back. It makes no sense to frame the issue as prime vs. sub-prime or wealthy vs. poor. It was purely a case of lenders not doing their jobs. So, then:

"Ferreira: Unfortunately, I don’t think so. Let me give you an example about lenders. Lenders got all the blame, especially sub-prime lenders, for the crisis. So what’s happening right now in this recovery? Are we giving thank-yous to the lenders because perhaps they’re helping with the recovery? Absolutely not."

And rightfully so! Lenders deserved the blame. And then they didn't "[help] with the recovery"; they stopped making loans at all.