We’ve gotten some expertise in the mortgage industry over the years (in addition to being in debt ourselves) and have seen some remarkable things.

With some of the programs available, credit score management (such as clearing out the most egregious items and rescoring) and less than diligent appraisers, some people finagled the house of their dreams without spending much more than closing costs.

We scratched our heads at the time as we went out and got a 30-year fixed that has a pretty good rate, but higher monthly payments than we could have gotten at the time with an adjustable.

Now, we’re looking downright brilliant.

Granted, a small proportion of people had no idea what they were signing. But the vast majority did and didn’t care.  After all, if they didn’t shell out a dime for their house, what was the downside if they lost it after a few years of low interest-only payments? After all, with housing values accelerating, they could just flip it and get out with a tidy profit before the bank got nervous.

That is why this opinion piece is so off the mark. The downside for 100% financing with inadequate income is that you can lose your house. Some good, nice people will lose their homes. Speculators will lose money.

It should happen sometimes. 

Otherwise it is not speculation and there really would be no risk. It is easy to spin a sad story as someone’s personal experiences are recounted on how they lost their McMansion and are back in Mom’s basement. It is sad. But how much pity can you have when you think that these people were trying to game the system, live the high life without saving or investing in their property and now are asking, in effect for a handout so that they could keep doing what they are doing?

They could have saved the 20% down, gotten a 30-year fixed that would work on their current income and become easier as their wages increased. But they didn’t. And they chose not to. They chose not to live in a “little less house” or in a town that didn’t have the best of the best schools. We chose less house with good schools. Somehow I don’t think the government is going to reward us for it.

The most entertaining part of the piece for us was the reference to the “successful” Chrysler bail-out of the late ’70s, which was bad policy. Some perspective on why it was bad policy can be found here.

A rate cut would help a lot of people who had loans with the interest rate tied to a specfic Federal rate. But the reincarnation of the Resolution Trust Company to focus on mortgages is unnecessary.