Before the crash lots of banks were routinely giving loans well in excess of the property value. They were also giving loans to people who had no demonstrable ability to repay them.

While I think the banks and mortgage companies should bear the lion's share of the blame, the borrowers also should have been paying attention to what was being loaned and so on.

In some places assessed value is a fraction of market value, where I live i think it's 70% but it could be lower in other places.

Then there are timing differences, the assessed value could be based on when the market in the area was terrible compared to when the appraised value was.

Then, a loan could be based in part on intended improvements that wouldn't go into an assessment yet.

Probably.

The maximum CLTV for HELOCS is generally 80%.

Commission on HELOCs for the LO is almost nothing.

here are some current market values for the property:

$320,000 Zillow
$345,000 Redfin
$341,000 ReMax


Still $140,000 or so more on the mortgage than the market value. It's a dinky house built in 1940 in a dinky little town.