These loans, usually adjustable rate mortgages (ARMs) were known as subprime mortgages. They typically cost two or three points above those with less-risky credit reports and carry interest rate structures with low ‘teaser rates’ for the first couple of years, followed by a reset to much higher rates. This reset or jump, frequently resulted in raising the borrower’s monthly payment by as much as 100% and thereby making it financially impossible for him to handle.

That’s why now we have world financial crisis, where all institutions across are involved. Hope this will end in 2-3 years, but home loans practice will chenge somehow in future, because nobody wants financial bubbles any more

I do respect your knowledge of the mortgage and foreclosure markets, so what are the details of who gets the break?

1. Your nuts if you don’t think we are doing the most significant financial tinkering in our nations history RIGHT NOW. It appears things are so out of control that the fed has lost track of the $9 Trillion in off balance sheet transactions its conducted to date.

2. Its popular to point to subprime loans and mortgage fraud as the culprits, but give me a break. There was something far bigger going on to get us to a point where 35% of Californian’s with a mortgage are now underwater.

3. I love this “contracts are part of our foundation” line. Actually one of the things that makes the U.S, most unique in the world is our bankruptcy laws which allow companies and individuals a second chance, and are largely why we are so much more entrepreneurial than the rest of the world. We take big risks, and if they don’t work, we move on.

4. Given that we have 3 Million upside down homeowners in CA, and only 13,500 were foreclosed on last month, are you really prepare to spend the next 10 years in economic hell as we let these things work through one at a time? Especially when our government is already running $1.2 Trillion dollar deficits just to keep things from unravelling faster?

Fraud was rampant in the mortgage business. But it was on both sides. Brokers and underwriters turned a blind eye to the borrowers’ facts as they collected their commissions.  I purchased an REO earlier this year. As it turns out, the house next door is in default.  I contacted the owner to discuss a hew fence. The folks living in the house gave me her phone number. She is a housekeeper at the Embassy Suites. The house has $600K in loans, I assume that was also the selling price in 2006. Now who in their right mind would lend her that much money? Yet, should we forgive her debt in an attempt to let her keep a house she cannot afford at ½ the monthly payment? I know people who bought their homes in the 90s, then ran up big credit card debt with cars, vacations, a life style they could not afford. Then I watched them refinance  to pay off their credit cards with option mortgages. I recall commenting at the time that I thought they should do something about their lifestyle, that what they were doing was not sustainable. Of course there are people who were honest and well intended and simply wanted a home. When the realtor and loan broker told them they could move in for no money down and they would have a payment they could make, they were on cloud nine. The American dream had come true for them. Yes, they may be victims and deserve our charity.

So, who is going to be in charge of deciding what is the right thing to do? So far, what has been done has been political and has not really fixed the problem. Should my friends who are loosing their home because of their credit card debt be bailed out? I love them, but tough love would have them loose their house and maybe they would get the message they were responsible for their problems, not the rest of us.

The US is a country of laws. Contracts including mortgages are part of the foundation of our country. Allow the parties to these contracts to work through them one at a time. That is how they were made, and that is how they will have to be resolved. If there was fraud, then enforce the laws regarding fraud. But don’t though the baby out with the bathwater.

The constitution does not guarantee happiness. It does, however, guarantee the right to the pursuit of happiness. This is a very big right and is envied by much of the world. I personally have a great deal of satisfaction knowing I have earned what I have.