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• Thursday, August 16, 2007 10:08 PM

  Mortgages Are Special

  This was an unusually lucid, articulate, and helpful article even for "How the World Works" -- very much in the classic style of the column.

  I'd like to add one thing, which is that homeowner mortgages have a peculiar place in the investment world because they're backed by the US government mortgage insurance corporations. The idea was always to encourage the American Dream by reducing the risk that lenders face if a home loan should go bad. In order to discourage lending institutions from going overboard at the government's expense there have traditionally been a host of regulations that limit how "out there" mortgage lenders can go in terms of risk.

  But over the past 20 years those regulations have been broken down, at the behest of the lending industry, and between one thing and another the federal insurers have gone from backing loans to repurchasing some of them to acquiring them wholesale. Now the public finds itself holding the paper on mortgages that no lender would have granted if the lender were to remain subject to the actual incurred risk.

  And lo, and behold, those high risk home loans are failing. So, yes, we can ask ourselves what to do about regulating Wall Street and so on, but it's not just the private sector. The government -- our government -- did what we wanted and helped turn the mortgage market in particular into the unholy mess that it is today. It accomplished this brick by brick, year by year, and all entirely on the public record. So if you're over 25 and you want to grab the nearest culpable person in frustration and wring their neck, look in the mirror.

  And if you're under 25, heh heh, uh... Sorry, kid.

  —Amity Read Amity's other letters
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