Mortgage Disaster

I usually agree to one degree or another with posts on the Left Coaster blog (you’ll see that blog on my blogroll), but this one by Mary echoes a rather common motif that rather goes against the grain for me.

It has to do with the rising tide of failures in the "subprime" home mortgage market, involving home loans that fall into several categories. One is simply the ARM, where payments initially are based on a low, “teaser” interest rate which rises after a few years. Others involve initial payment of interest only, and some involved making the loan based on applicant data, such as income, which the applicant knew that lender would not verify.

Bush administration regulators began allowing the lender to claim as income the highest payment that could be made under these loans, rather than the payments that actually were made, which is what Mary bases the following accusation on,

We will probably see many, many Americans find themselves believing their lives and their dreams for a better future have been destroyed. All because the Bush economy was purposely based on a Ponzi scheme where the rich hold all the cards and the people who should be able to depend on government standing on their side were sold down the river.

I’m no fan of the Bush administration, and I’m sick of regulatory changes which further enrich moneyed interests. But I think it's a stretch to argue that the Bush administration is the primary driver in people losing their homes, here.

Mortgage loans were attractive for reasons beyond that regulatory change. The change made some people richer, but the country was awash in mortgage money and the subprime market developed because there were not enough prime borrowers to lend it to. Builders were building homes at a frenetic pace, and the subprime mortgage market helped them sustain it.

More importantly, while some of the borrowers are innocent victims, a large majority are not. The terms of the loan were spelled out in documents which the borrowers signed and the increasing payments were not buried in the fine print, they were stipulated in the body of the document. Further, in many cases the borrowers lied about their incomes to obtain the loans. Most all of the buyers knew they were buying homes that they ultimately could not afford, hoping that soaring prices would magically "bail them out." They knew that they were taking a gamble and now they want big brother, that's you and me the taxpayers, to pick up the cost of losing that gamble.

I live in Southern California, land of (among other things) soaring home values. I have been bombarded for years with offers of “fantastic low payments” on my home, mailers telling me of the dream vacations I could go on, the cars and boats I could buy, the easy money that I had in my home. Easy money. I still have my years-old, low-rate, thirty-year fixed.

When a con man takes down his mark there is no truly innocent party, because the con works by appealing to the mark’s greed.

I do not favor the Bush unregulated business model. Unregulated business becomes predatory, but it cannot truly do so until it becomes monopolistic. There is not much good in the sad story of this subprime lending market, but the saddest part of the story is that the fingers of blame are pointing both ways.