Thursday, February 07, 2008

Mortgage crisis

I havn't commented on the sub-prime mortgage crisis. Years ago, when I worked in Information Systems for Northern Trust Bank, my contact with loan systems was commercial loans, not retail or mortgage loans. The term "sub-prime" was used often but it referred to a high quality loan, one where the borrower got serious rate discounts, below prime rate (such loans would have been packaged with balance requirements and with other transaction based type services). So when I started hearing about the sub-prime mortgage situation the whole thing just made no sense to me, the language didn't match the language I'd been familiar with when I worked in banking.

It sounds like weasely language to me. I'm always suspicious when language sounds like weasel words.

The press, and the government, seems to have set out to define the white hats and the black hats. The white hats are those poor home buyers who bought houses they couldn't afford with no down payment and the black hats are those mortgage brokers who sold them the loans and packaged them up for sale as mortgage back securities.

I don't think they got it quite right.

The mortgage brokers probably qualify as black hats. But so do the home buyers, the ones that are losing those homes they couldn't afford in the first place, the ones that people like Clinton think the rest of us should bail out. Those clowns were just lining up for a free lunch that was made out of tainted meat. The borrowers and the lenders both are black hats in this situations.

GoodWillHinton has recently pointed this out also.
Why is it always businesses that are greedy? Aren't businesses made up of people just like you and I? If we are honest with ourselves, aren't we often greedy too?

There is way too little introspection and way too much finger-pointing in this debacle to be of any use going forward.

The victim is the investor, the ones who bought those mortgage backed securities. But I'm not sure they're victims we need to feel pity for, they tend to have been big boys who are supposed to know something about the risk of mortgage default.

There's so much nonsense in this whole thing that I decided to start a small blog to just review the basics of home mortgage finance.

I paid cash for my current home, btw. I recently checked into getting a mortgage to raise some cash and the lender I talked to (Chase) was so weasely about the whole thing I decided to not bother.


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