A Decent Analysis

A decent, if incomplete, Analysis can be found here in the NY Times:

FAIR GAME; Home Loans: A Nightmare Grows Darker

By GRETCHEN MORGENSON
Published: April 8, 2007

SNAZZY and newfangled mortgage loans, like those with low initial rates of interest or extended terms of 40 or 50 years, helped to drive homeownership rates in the United States from around 64 percent two decades ago to a peak of almost 70 percent in recent years. Called ''affordability loans,'' these new kinds of mortgages have gone mostly to first-time home buyers and borrowers with tarnished credit or spotty employment histories.

Now, however, with home foreclosures and mortgage delinquencies soaring, it is becoming clear that the innovative loans that lenders championed -- in what the industry called the ''democratization of credit'' -- are turning the American dream of homeownership into a nightmare for many borrowers.

For those who wish to blame the "failed policies of the Bush administration," then make some weird leap to "tax cuts for the rich," there is some sobering history here:

For years, the homeownership rate in the United States ranged from 60 to 65 percent of the total population. But in 1995, President Bill Clinton directed Henry G. Cisneros, then the secretary of the Department of Housing and Urban Development, to work with the housing industry, nonprofit groups and other government officials to develop the National Homeownership Strategy, ''an unprecedented public-private partnership to increase homeownership to a record-high level over the next six years,'' as described in an Urban Policy Brief in August of that year.

This did have some "positive effects" for some folks:

Lenders were off to the races. They created slick new mortgage products with low ''teaser'' interest rates that ratcheted up significantly after two years or so. They devised loans that required only the payment of interest, not principal as well. They extended mortgages to 50-year terms to reduce monthly payments.

The partnership succeeded. In 2004, the homeownership rate reached 69.2 percent, a record.

But, it had a dark downside:

But according to experts on lending practices, the products devised to propel homeownership did so only as long as housing prices kept rising. Now that prices have started to fall, these products look instead like a transfer of wealth to mortgage lenders from those who can least afford it: subprime borrowers.

''It's not good to put somebody into a home if they can only afford it when home prices go up,'' said Thomas A. Lawler, founder of Lawler Economic and Housing Consulting Daily, a newsletter. ''Now that prices are falling, the folks who made enormous amounts of money lending in 2003, 2004 and 2005 are giving some of it back. But they aren't giving it back to the poor borrowers.'

'

This whole system, created by government, has backfired. Once again, government, with good intentions in mind, has made matters worse.

This whole thing has nothing to do with "tax cuts for the rich," or the failed policies of George Bush (although he is rightly blamed for not stopping it, big government Republican that he is); but with bad risks brought about by the failed policies of Bill Clinton.