WHAT REALLY CAUSED THE MORTGAGE MELTDOWN?

Recently, there’s a very interesting article in the

Wall Street Journal that brings attention to other factors that contributed to the mortgage meltdown.  Written by a professor of Economics, Mr. Stan Liebowitz, from Texas University, says that politicians need to stop trying to make this a politicial issue and deal with the root cause.  He states that “51% of all foreclosed homes had prime loans, not subprime” therefore, tighter regulations on lenders who would lend money to people who did not understand the complexity of the loan….i.e., an ARM (adjustable rate mortgage).  Moreover, he states that “Sharing the blame in the popular imagination are other loans where lenders were largely at fault — such as “liar loans,” where lenders never attempted to validate a borrower’s income or assets.”

Loans that were made to people without substantiating their income/assets has largely contributed to this situation as well.  If someone doesn’t have a “stake” in the transaction, they are more likely to walk away.  “If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell.”

This is something I have been saying all along.  If you don’t have any “skin in the game”, what’s to say you won’t walk away?  This too will pass and would have passed even if the politicians weren’t involved.  Nobody “deserves” a home if they cannot support the upkeep — that includes mortgage payments — or substantiate their income stream.  Larger downpayments should be required…..we don’t want to go through this again.