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Making The Blame Transition From Housing To Mortgages

Last week I posted about Confusing A Housing Bubble For A Lending Bubble [1] and how the housing boom was really caused by an erosion in underwriting quality. I suspect until we see major stats on housing price declines in some markets, we are going to see a lot more articles about mortgage lending.

Businessweek had a particularly vitriolic cover this week: How Toxic Is Your Mortgage? The cover story was called Nightmare Mortgages [2]. Its a thorough piece that basically outs most creative financing. This is one of the first large scale pieces I have seen that really fleshes out exotic mortgages and shows how so many people were duped or didn’t fully realize what they were getting into.

My first thought was along the lines of: Why didn’t the borrowers take more responsibility for the process of getting a mortgage rather than simply signing on the dotted line? But in reality its hard to be that tough on someone that was misled and a victim of some type of fraud. However, I am amazed at how many people simply signed. Herd mentality rules.

My second thought was: This seems to stereotype the entire mortgage market, giving the impression that nearly every mortgage that isn’t a 30 year fixed is “toxic.” I think the reality is that exotic products are found in differing amounts in different markets and with different demographic groups. Its not a small problem, but I would guess that this article tends to exagerate how widespread the problem is.

My third thought was (ok, it was my first thought): What about all the other people that will be hurt by the falling values of properties that purchased with these products if they are foreclosed in rising numbers? The article seems to suggest there are many who are vulnerable, especially as mortgage rates reset, that this lending pattern will hurt many others indirectly.

And if all this isn’t bad enough, Steve Irwin passed away unexpectedly [CNN] [3]. Crikey!