Was a 20% Downpayment Not Enough For The Banks?

I have theorized about the 20% Downpayment Myth on the blog and in trade rags such as Chicago Real Estate Executive. Why do banks like to see a home buyer make a downpayment of at least 20%? Because that's the typical discount offered on homes against which the mortgage has defaulted. If a homeowner has a 20% stake, the bank has nothing to lose. Literally. Except now there's this anecdote coming from San Diego via The Wall Street Journal Online....

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[Source: The Mortgage Reports Blog]