I believe that the "wisdom" was that the $500 K house you bought, but couldn't afford would be worth $600K in a year (cuz the same house sold for $400 K the yr before), so as long as you make those interest payments, the increasing value of the house would take care of the principal, and yield a nice profit (tax free too, I think in the US as well). WHen the house becomes worth less than what yo paid for it, the whole economics of the scheme kinda crumbles. As well, there was fierce competition to sell mortgages, and if the competitor was offering 0% down, and low payments, you better too if you wanted to stay in buisness.