I think it would be pretty hard pressed for lawmakers to tell banks what's legal for loaning money.
The reason these loans are granted is because the average worker can't afford the high cost of Bay Area housing. Banks and loan companies had to become very creative to keep their services active.
The realtors in our area are much to blame IMO. They are still conducting bidding wars when purchasing a home which raises the prices astronomically. People are over extending there bank prequalified monthly mortgage payment in order to out bid the next guy which goes back to the creative loan arrangements.

I'm astonished at how many baby boomers are continuing to refinance ther mortgages to consolidate there credit card and other monthly payments. By the time they retire they will still owe bundles on there houses and if they don't have adequate income at retirement age there will be many foreclosures. If they don't have enough money to make all there monthly payments and resort to refinancing, then they probably don't have a nest egg for retirement and many companies aren't going to keep them on the payroll or hire them at retirement age.

What's not legal, but overlooked is mortgages to illegals that have slipped into the US for work. They are using utility bills and reciepts of money they sent back home for credit references. Try that with your bank being a legal citizen and you will be denied as many sincere legal citizens have.