Let's start with this:

"...our parents wouldn't have dreamed of living as they did -- fancy cars, foreign vacations, frequent restaurant meals -- and also buying a house."

Yes, there surely are some families who live far beyond their means through the pursuit of the good life and the fancy cars, foreign vacations and frequent restaurant meals that (in the consumer culture) make it up. But for the vast majority, this tale is the same sort of myth as Regan's welfare Cadillac Queens. On this count, I'd recommend Elizabeth Warren's book, The Two Income Trap.

The second thing which I think is left out (and which is explored in the aforementioned book) is the stagnation of wages for the large majority as we put an ever larger portion of wealth in the hands of fewer and fewer. Our bankers, Wall Street financiers and our government sought to address the issue not through responsible policies designed to insure responsible lending and rising wages, but through lending practices and government policies that substituted EZ credit and asset bubbles for wages in order to create an illusion of wealth.

I'd recommend people search out past Elizabeth Warren interviews with people like Charlie Rose, Jon Stewart and especially Bill Moyers. She has a good understanding of the issue.

So yes, there are some out there who just had to have the good life that they could not afford. But most of us have been struggling just to hang on, to live in safe neighborhoods, to send our children to decent schools and to keep our seven to ten year old car on the road.

America is a broken culture. It's a culture that defines success as giving ever more to those who have plenty, and consoles itself by telling us that all the "losers" are where they are because they deserve it. We have to get away from that.

There are two distinct issues with the housing crises. The first is the cabal of bankers/builders/developers desiring to sell at ever increasing prices. The second is the desire of mortgage holding (generally, originated prior to 2000) households to maintain the Clinton standard of living.

Both issues derive (as I have understood for decades, and have written about only recently) from the decline (or, at best, stagnation) of median income.

For the first issue, there are only two factors which drive increasing prices of houses: falling interest rates or rising median income. There is no other source of funds. By regulation and normal business practice, mortgage payment had been in the 30% of gross income range. Plus or minus a bit from place to place and time to time. In any event, no rocket ship rise; there couldn't be. So, with a relatively fixed mortgage payment base, and interest rates without a large extent to drop (not as happened after Volker killed the economy), the cabal looked for new and interesting ways to change the formula. Which they did. A $1,000 mortgage payment was miraculously able to fund two or three times the house price of 2000. The primary bad actor here is not subprime lending, despite whatever the talking heads will say; at least most of them. The bad actor is the ARM. The only time an ARM makes sense is a time of wage push inflation. I'll repeat: only during a time of wage push inflation. Other types of inflation will not support the rises in monthly payment.

For the second issue, with no increase in wages, the median family saw all the unearned equity (unearned in the sense that it was equity delivered not by paying down principal) going to waste, and there was the plasma TV for the media room. And the like. So the median mortgage holding family took out equity loans up to make up for their stagnating wages.

I haven't seen figures, but I would be interested to know what the split is between houses foreclosed (and in some stage of foreclosure) on just a first mortgage and those on multiple mortgages (aka, home equity loans).

The second issue was Joe Median's way to stick it to the Man. Didn't work out; I expect most of those folks voted for Bush twice, and hated Clinton. Knuckleheads, all.

Houses had gotten so expensive that the average family could not buy a decent first home without going in for a no-money-down, subprime mortgage. Once you're in that position, your margin of error is very thin. And with the recession, any job loss (or even substantial pay cut) and the margin is gone.

And, of course, mortgages are the one thing the bankruptcy judge can't renegotiate.

so what else could we expect to happen?

I do think it is important to understand the greater macroeconomic conditions that incentivize this behavior. Most specifically the ability to generate staggering amounts of debt in perpetuity without seeing what one would expect the consequences should be.

The work of economist Robert Triffin is crucial here:

In 1960 he went before the United States Congress warning of serious flaws in the Bretton Woods System. His theory was based on observing the dollar glut, or the accumulation of the United States dollar outside of the U.S. Under the Bretton Woods agreement the U.S. had pledged to convert dollars into gold, but by the early 1960s the glut had caused more dollars to be available outside the U.S. than gold was in its Treasury. As a result the U.S. had to run balance of payments deficits to supply the world with dollar reserves that kept liquidity for their increased wealth. However, running the balance of payments deficits in the long term would erode confidence in the dollar. As a result over the long term he predicted that the system could not maintain both liquidity and confidence, a theory later to be known as the Triffin dilemma. It was largely ignored until 1971, when what he had hypothesized came to be, forcing U.S. President Richard Nixon to halt convertibility of the United States dollar into gold (see Nixon Shock). This shock led to the end of the Bretton Woods System.

However, because the Dollar reserve system was already in play, and nations desperately needed to maintain the Dollar as a value-store; the fundamental problem became worse. A condition where the U.S. would provide liquidity for global economic expansion, and a de facto condition of high Dollar confidence, because the reserve system utterly depended on it.