Here are a couple good posts to read -
Irvine Housing does a good job discussing Liar Loans - usually called Stated Income - No Documents loans. Once they were unusual but during the bubble they became very common-place. When you read articles about how people qualified for really high loans - like the one in the story from yesterday - these liar loans are usually involved. Just state what you make - no need to prove anything - and you can easily get 500K overnight. Boy it is really great to see all of these great business practices during the bubble. I guess Enron became a business model for a lot of the mortgage market - no one cares about business as long as they are making money.
Calculated Risk has an older post from Jan. but it is a must read - the bottom half of this post deals with the potential rise in negative equity levels as the housing market falls. Check out this graph - that is pretty scary - especially all of those people who are so close to the edge and do not know it yet.