In a way the lenders are responsible for it. Say they loan $55 on a $60 brick and the market turns bad, now the brickowners are strapped for cash and want to refinance and take out $65, but their brick value has decreased to $45. Now they cant afford the payments anymore and have to let the brick go into foreclosure. Now the bank is stuck with at least a $10 loss and will probably sell the brick for $30-$35. At the end of the day the lender is the one who took the biggest financial loss.

Another way to help reduce fraud, IMO would be to put mortgage brokers and loan officers on salary. Right now the industry is commission based. That means all these lenders and brokers are scrambling around to close any loan they can so they can get paid. Whether the loan is good for the homeowners or the bank is irrelevant to some of them. That is where the problems can start. The loan officers work for the bank, but in some cases they are actually the banks worst enemy.

I have been an appraiser for nearly 8 years and work for a reputable company and am in the process of starting my own. The company I work for has lost a few clients because we would not inflate or "stretch" values as far as other appraisers. That hurts in the short-term, but keeping your license and coming out the other side of this downturn with your reputation intact is much more important.

This whole thing is weeding out a lot of bad appraisers, mortgage brokers, loan officers, agents and so on. They are also making it much harder to become an appraiser and are coming down much harder on the ones who are caught doing things they shouldn't. It was something that the industry needed a long time ago and this whole bust helped push things along. It is far from perfect, but at the end of this recession I think the industry as a whole will be much better and more legit.