"But they caused my mom to have quite a few sleepless nights."
He knew the risks, and took a calculated risk himself. It paid off for him, likely because he studied the local market prior to making the decision, and really stayed on his toes to make the numbers work.
I don't think there are too many "average" homebuyers that are as aware of the risks. They're just looking at the low payment. Most will make out OK, but some will get burned; here's to hoping that not too terribly many lose their shirts, which could reverberate throughout the economy.
I live in Utah which leads the nation in personal bankruptcy! All over my area there are families who aren't making over $50,000 a year moving into $250-300,000 homes off of these mortgages. Then they get second and third cars, home entertainment systems, etc..., basically liviing way beyond their means . At some time the piper is going to come calling and if it does crash, they'll be owing for the rest of their lives.
Matt
I see nothing wrong with zero down loans. Most of the time the benefits of home ownership still outweigh renting for those borrowers (I don't want to get into the discussion of whether you really own when it's mortgaged-that's a whole different topic).
Where it becomes dangerous is when you couple zero-down with interest only payments, short period ARMs, overpriced markets, and borrowers with marginal credit.