[k2blader]

I'm pretty ignorant about these things. Is it not a risk because if she can't pay the mortgage the bank will get the house and soon enough another buyer?

[Thud]

The value of the security was rising dramatically, so the bank was far less likely to lose the value of the security allowing for turnover time and sales costs.

Lenders tend to compute the amount of the required down payment on a loan so that will be a bit less than the unpaid interest on the value of the loan during the period between onset of non-payment of the loan and resale of the house after repossession, plus sale costs. The former protects them from the latter. They make their profit on the mortgage points.

But in this market home prices are rising so fast, and predictably, that at least for the period in question the projected increase in the home's value during the period between "onset of non-payment of the loan and resale of the house after repossession" will exceed lost interest on the principal in that time plus sales costs, i.e., the projected increase in the home's value in the next six months serves the same lender purpose as 10% down payment.