When the financial world starts going south it is human nature to to start pointing fingers and it is always the easiest route to start at the bottom of the totem pole so to speak. To some degree, as many people have come to believe, Mortgage Brokers are responsible but I would call it more of an ignorant complicity as opposed to malicious duplicity.
Lets start at the top of the pole and work are way down. Highly paid money managers, for the investment banking industry wanted to create new products to attract investors to the secondary market where home loans are bundled and sold in lots. Their intent, as any money manger will tell you, is to make lots o' money for themselves and their clients which are for the most part wealthy US citizens.
In order to make this boring old market more sexy they collected the most brilliant darlings of Wall Street to conjure up something pretty to dress up the Ugly Betty called the Secondary. High risk, complex, and untested these products became the next great thing and almost everyone wanted into that pretty little thing called the adjustable rate with the pay option arm.
Now as logic might dictate these adjustable rate mortgages clearly state that after the low introductory rate they adjust. Now if people managed to get loans that were only available to them as result of the lower rate and loosey goosey guidelines, how in tar-nation did anyone think that when the rates inevitably rose these poor souls could afford to pay the increase.
Well, all those Prophets of profits those brainy actuaries that toil away on the lower levels of the corporate world went to work crunching away to find out just how many defaults would occur and the risk level that the market could withstand before a meltdown began.
Think of the movie China Syndrome. When the flaw in this better than amazing profit scheme became evident, the flaw being: what happens if we don't continue to see double digit increases in Real Estate values indefinitely, no one really wanted to see it. Not the money managers, not the CEO's of the investment banks, not the investors in mortgage derivatives, not the lenders, not the brokers, not the Real Estate professionals, and definitely not the home buyer.
Suddenly the Real Estate market gets so HOT, and Some Like it Hot, that no one can afford to keep buying at the prices we were creating for ourselves. So we have all these Icarus' flying higher and higher and our waxy feathers begin falling off one buy one. A foreclosure here, a foreclosure there and the next thing we know the investors are pulling out of the secondary, the lending pool begins drying up, rates start rising, it becomes harder to get a loan, and we all know the rest...
Down, down, down back to earth we fall. The question is when are we going to hit the bottom? How much is it really going to hurt? And will we end up in China?
So when it comes to the blame game I'm pointing at myself and I think you should do the same.
Peace,
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