Blame subprime while you can

The subprime housing mess gets all the headlines… for now. We all know the unfortunate story — some predatory and not so predatory residential lenders made highly questionable loans to people who didn’t understand the terms or economics and can’t keep up with payments since home values stopped skyrocketing. Cheap debt fueled the process and everyone gorged on fee volumes — brokers, appraisers, bankers, securitizers, and rating agencies. Some high profile CEOs get the boot in the wake of large writedowns. But come on, we all know over-the-top borrowing and blind lending occurred to some degree through the entire real estate marketplace and in fact extended across the spectrum of finance markets.

For starters, easy money and fee-for-all lending also went up the food chain to many “more sophisticated” (more affuent) residential borrowers who took out large home equity loans to finance spending sprees or home additions. And how many of your friends traded up, buying new homes or second homes with jumbo mortgages, taking on more debt service and chancing adjustable rates? That new beach house on the water may not look like such a great buy anymore.