I think part of the cause of the foreclosure problem is TV shows like 'This Old House'. These shows display home renovations that cost tens or hundreds of thousands of dollars to houses which are functional to begin with. People begin to think it's 'normal' to spend this kind of money on the renovation of a functional home. To get the money, people cash in on the equity in their homes, putting them in a dangerous situation should financial problems arise.
Prior to these kinds of shows, I think people would have been far more likely to accept an old but functional home as adequate and not get themselves into debt in order to have a newly renovated home.
It also causes difficulty when trying to sell older but functional homes, like the people in question in this thread. They feel pressure to 'update' the house in order to sell it, putting themselves at risk. Buyers are less likely to be looking for a older functional home and more likely to purchase the newest updated home. Good for Home Depot, Lowes, and the credit card and mortgage industries but not necessarily very good for the individual homeowner. It takes more self-discipline now to accept that older functional home.

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1977 300d 70k--sold 08
1985 300TD 185k+
1984 307d 126k--sold 8/03
1985 409d 65k--sold 06
1984 300SD 315k--daughter's car
1979 300SD 122k--sold 2/11
1999 Fuso FG Expedition Camper
1993 GMC Sierra 6.5 TD 4x4
1982 Bluebird Wanderlodge CAT 3208--Sold 2/13