There’s an old adage in the banking business, according Dr. Robert Strong, a professor of finance at the University of Maine. “Owe the bank $100, and you’re in trouble. Owe the bank $100 million, and they’re in trouble.”

At the close of 2007, many homeowners find themselves in trouble, owing banks monthly mortgage payments that are $100 or more higher than they can afford to pay. And collectively, banks find themselves in big-ticket trouble. Both are victims of the subprime mortgage crisis. But the biggest victim may be the U.S. economy, which is driven in large part by the housing market. This means a clearer assigning of blame for this debacle is in order.

Each decade or so, the value of housing inflates at unsustainable rates, drawing banks, construction businesses and individuals into the fray, each hoping to score in some way. In the late 1980s, many coastal Maine homeowners reported out-of state visitors knocking at their doors, making purchase offers $25,000 higher than the home’s assessed value. In response to this demand, builders constructed hundreds of “spec” houses, and bankers felt safe in financing them because of the hot real estate market. When the state slid into recession at the end of the decade, banks were stuck with dozens of unsold or incomplete houses.

This time around, a real estate boom created paper value that emboldened largely unregulated mortgage companies and some banks to lend freely, without enough regard for the borrower’s ability to pay. With house values growing by five figures every few months, such loans were considered a “can’t lose” proposition. But as quickly as one could say “Flip this house,” falling interest rates reversed, and house values peaked and then dropped.

At the height of the lending flurry, about 75 percent of mortgage loans in California and Florida were interest-only, as were about 45 percent nationwide, Dr. Strong said. It’s hard to gain ground on repayment when the principal remains untouched.

Dr. Strong and others point the finger of blame first at the consumer. No law could intervene between someone signing a loan contract with a potential monthly payment that didn’t match take-home pay. Knowingly providing false income information on the loan form, which many subprime borrowers did, is a felony, Dr. Strong notes. Perhaps a prosecution or two would have had the desired chilling effect.

The Federal Reserve has crafted new rules to avoid future subprime losses. Among them are forcing lenders to make borrowers set aside money for taxes and insurance and making lenders get proof of a borrower’s income.

Dr. Strong believes lenders would do well to add more disclosure to their loan process – more forms for the borrower to sign, after first hearing the loan officer’s explanation about possible interest rate hikes and house value drops, and what each could mean.

Five regional banks have created a $125 million fund to cushion the impact of subprime losses. A move by three large national banks to create a similar fund was withdrawn in recent days, perhaps suggesting the fallout will not be as bad as expected. The best course, Dr. Strong suggests, is for government, regulators and banks to stay in a holding pattern as the new year begins, to calm volatility. Time, and an improving economy, will be the best balm for burned lenders and borrowers – until the next housing boom.