What I've Been Doing Most Weekends

Lately I've been condo shopping. And I think I'm the only one left on the market now that the subprime market is crashing like a Ford hardtop in a 70s Burt Reynolds movie. Anecdotally speaking, everything on the market 6 weeks ago is still there. And these are nice places, small but completely remodeled, and close to the beach. The problem is that the death of subprime loans means that the entry level market is done, because the only way people were getting into it were by putting no money down and floating two mortgages with a junk loan. Well, that's biting everyone in the ass, and it's reaching a crisis point.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

Ameriquest fired most of their staff today, after settling out of court for $325 million to pay back victims of their predatory lending practices. And they're just the first of many lenders to have their businesses completely torched. That's why stocks plummeted earlier this week; that and the growing realization that this housing market will get far worse before it gets better, and given that the housing boom contributed to most if not all economic growth the past few years, that means recession with a capital R.

This explanation of the crappy mortgage scams that brought us to this point is enough to make you sick.

Today's pop quiz involves some potentially exciting new products that mortgage bankers have come up with to make homeownership a reality for cash-strapped first-time buyers.

Here goes: Which of these products do you think makes sense?

(a) The "balloon mortgage," in which the borrower pays only interest for 10 years before a big lump-sum payment is due.

(b) The "liar loan," in which the borrower is asked merely to state his annual income, without presenting any documentation.

(c) The "option ARM" loan, in which the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.

(d) The "piggyback loan," in which a combination of a first and second mortgage eliminates the need for any down payment.

(e) The "teaser loan," which qualifies a borrower for a loan based on an artificially low initial interest rate, even though he or she doesn't have sufficient income to make the monthly payments when the interest rate is reset in two years.

(f) The "stretch loan," in which the borrower has to commit more than 50 percent of gross income to make the monthly payments.

(g) All of the above.

If you answered (g), congratulations! Not only do you qualify for a job as a mortgage banker, but you may also have a future as a Wall Street investment banker and a bank regulator.

No, folks, I'm not making this up. Not only has the industry embraced these "innovations," but it has also begun to combine various features into a single loan and offer it to high-risk borrowers. One cheeky lender went so far as to advertise what it dubbed its "NINJA" loan -- NINJA standing for "No Income, No Job and No Assets."

Two years ago I was told by a lender that "Nobody gets a 30-year fixed anymore." Just two weeks ago a major bank tried to sucker me into an interest-only balloon mortgage. The lending market is simply designed to rip off the homebuyer, and even despite this crash that mentality continues to exist. And it also happens to be a core Republican idea pushed by such leading figures as Alan Greenspan back in the day, which makes sense since it only benefits banks and not working people:

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . .

Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

It's just another example of how these insane fiscal policies have chipped away at the American dream. We're going to have millions of families in fiscal crisis over the next few years because they were misled by banks and lying government officials spewing their sunny talk about how constructive and beneficial it was to leverage themselves to the hilt and put their entire financial future in jeopardy.

And this actually works in my favor (like I said, I'm the only one in the market and I can qualify for a traditional loan and put money down), but it makes me no less livid.