If loans had been restricted to people who could actually make the payments, home prices would not have skyrocketed like they did and we would be much better off all around.

But no, the mortgage, financial and real-estate interests structured everything so they could take their commissions, and pass the default risk on to someone else by severing all connection with the long-term performance of the loan. This to me is the fundamental problem of all of this mortgage securitization scheme. Each party in the lending process needs to retain some liability in case the mortgage payments are not made. That way they would have something to counter their greed motivation that dominated the last 5-6 years or so.

What does buying into a bubble matter if you live in your home long enough to pay off the mortgage? Those intending to flip got what they deserved, but a bubble doesn’t matter to a long-term homeowner.

Not All Financial Woes Are Created Equal
The failure of Indymac Bank – according to The New York Times the largest lender to fail in more than two decades – can be laid squarely at the feet of the lax (or nearly non-existent) underwriting that is part of (a big part of) the sub-prime mess. The chickens simply came home to roost.

The troubles of Fannie Mae and Freddie Mac are quite different. Freddie and Fannie underwrote loans carefully; their difficulties are a result of the unprecedented decline of home values.

In 2006, going against the conventional wisdom that single-family home prices never decline (they might stop rising for awhile, but they never decline), we predicted that single-family prices could decrease 10 to 20 percent. Painfully, that forecast turned out to be very correct – but also optimistic. We’re in a cycle now in which housing declines already are greater than at any time since the Great Depression of the 30s. And we’re not at the bottom yet.

If you don’t want to be disappointed by housing performance in the near term, disregard forecasts that the bottom is just around the corner – unless that corner is in Timbuktu. The bottom is NOT coming soon. And when it does arrive, it will not be obvious, like the bottom in the chart of the DJIA. The housing “bottom” will become apparent only in the rear-view mirror, when you realize that prices have stopped falling. Don’t expect a sharp rebound.

We will stay at the bottom for quite a while. How long that lasts will vary, as always, market-by-market.

The article’s protagonist should have been a renter these last several years. You gotta live somewhere, but that doesn’t mean you have to buy.

And the American dream is still there. It’s about opportunity and freedom, and it’s still around today. For all of us, including the lady in the article. It’s too bad she used that freedom to make serious mistakes, but that’s the price of freedom (that and vigilance).