This is a perfect example of why banks should ONLY LEND WHAT THEY HAVE!!!
When a bank lends credit (which it is not allowed to do, but does all the time cause no one questions it) it is lending something that it doesnt have. When a bank lends money, which is all it is allowed to lend, then there can be no problem. 1) the bank is going to make sure the person is good for it, no more 120% 0 down no documentation loans, 2) they can only lend so much.