Isn't it ironic that

[kandrathe]

...

Alright lets see how this works.
Number one mortgage is based on the following idea. That average family moves out of their house after 5 years and doesn't really keep the house over long term, so for this purpose this mortgage would make sense as the last grand payment would come from the sale of the home. Interest only payments would decrease the cost of the mortgage of the mortgage allowing more families to buy the home.
This product would also be great for speculators.

Number 2 is based on the idea that bad loans could be written off and successfully managed of by the risk management department. In the end of it all the bank still gets the house that they can liquidate.

Number 3 same idea as before new families with lower incomes could buy the home sooner and since their income expected to go up over time they will increase their mortgage payments. More dangerous loan for the banks because it exposes it to greater risk due to the value of loan could exceed the value of the asset. However the banks often have the options to pull the loan back.

Number 4 has been a common practice for a long time and just analogical to having multiple leans on the house.

Number 5 same idea as before, the persons income will grow and they would be able to make the new payments.

Number 6 the loan is based on the idea that the person can make the payments (hey they signed it) but the bank will get the house to liquidate in the worst case.

Final person at fault is CONSUMER for being and IDIOT and signing up for this stuff without consulting financial adviser or thinking things thought. It is all great to blame the big companies but they did not make anybody sing those mortgage papers people chose to do it themselves. If they would have thought more about it or gave another thought to it they would not be in the mess. The companies are at fault with improper risk management of these loans.

All of it is predicated on the idea that the value of the property will remain flat or increase. The housing price bubble resulted in loans being written for well over the actual value of the property. Massive foreclosures have snow-balled putting more properties into an already glutted market further reducing the housing values. This is also why AIG, the world largest Mortgage insurer is in trouble. Mortgage banks, and mortgage derivitive securities have policies with AIG that protect some of their portfolios from mortgage values on bad debt decreasing.

Actually, the poor CONSUMER is not really the idiot here. They came with nothing, and walk away with nothing. Anyone with a nest egg could lose it all. I have a good friend who lost his house because he refinanced to an ARM that went up, and then when his wife had an illness, they lost her supplemental income, and they couldn't keep up with payments on their debt load. Many people live only a few paychecks away from financial crisis. The next insolvency will be State governments who will be unable to cope with the spike in demand for unemployment, and services for the newly poor.