Credit Where Credit is Due

Who is to Blame for the Mortgage Crisis?

As the mortgage crisis in the United States continues to worsen (now, one in six homes are in danger of foreclosure), it seems everyone is scrambling for a scapegoat or alibi.

Like all disasters that impact a large portion of the nation's population, or the economy, the issue of 'who is to blame' has quickly transformed into a political matter. Predictably, the talkers of the Right are stepping up to defend interests of business, while the Left lines up behind whoever seems to be the most vulnerable underdog.

As with most such things, one side can easily accuse the other of 'blaming the victim', and this seems especially true in this case. Is it the fault of a hiker who steps into a bear trap for not looking where he was going, or is the trapper to blame, for laying a hazard so close to a nature trail?

So too is the muddled matter of the mortgage market. Did too many people try to bite off more than they can chew? Or are the banks succumbing to the siren song of greed?

In all honesty, the truth is most probably a bit of both. However, it does seem strange that so many people would all of a sudden up and sign for mortgages that they know they can't afford - all at once.

Call me a liberal, but I believe in giving credit where credit is due. Something had to change to make it possible for all these people who can't afford their homes to suddenly be eligible for mortgages. What gives?

According to federal reports, better than 50% of mortgages in 2006 were enacted with down payments of 5% or less. Incidentally, until two years ago, it was nearly impossible for anyone who didn't have AAA credit AND a hefty income to qualify for a mortgage like that.

What changed? According to Mike Colpitts, editor of Housing Predictor, "Mortgages were made to many subprime borrowers that adjusted upward to unrealistically high payments within a couple of years and thousands of mortgage agents and mortgage brokers working on commission cooked the applications to make more conventional 'Junk Mortgages' that should have never been made in the first place."

In short, loan sharking has become a standard business practice in American Banking.