how the hell did this happen????

Over the last several months, I've been watching the unfolding mortgage crisis from the sideline. I have to admit, I didn't quite understand it until recently.

There seems to be two parts to this. I understand the first one. People purchased homes, that were probably too much for them, using ARM's, with the expectation that they could refinance the home, or sell it at a profit before the ARM started adjusting. Unfortunately for those guys, their property values actually went down. So, at refinance time they had negative equity and were stuck with the increasing ARM rates. Those who had planned to sell were stuck in a home on which the owed more than it was worth. Selling would cost them a fortune.

Part two of this mess has me scratching me head. People who purchased homes they no way in hell could afford. I saw one report on a family in Massachusetts trying to pay for a $350,000 home on a $70,000 yearly income. Raising two kids is expensive enough, without the added burden of a $350,000 mortgage. But the story that truly blew me away was of the woman from Queens who somehow managed to secure a mortgage for a $700,000 house on a yearly income of $35,000!!!!

I repeat. HOW THE HELL DID THAT HAPPEN!!!!!!

I'm no stranger to the whole mortgage process. I've had several. And every time I've applied for a mortgage, I practically had to use a wheelbarrow to bring the paperwork to the bank. They wanted checking account statements, tax returns, pay stubs. They wanted to know how much I spent on toilet paper and other shit. Hell, I'm surprised they didn't ask for a blood sample and urinalysis. The mortgage broker always cautioned me to not do anything to affect my credit until after closing, because they would check it the day of closing, and if anything changed, it could mean starting all over again.

I guess this kind of falls under the category of "let the buyer beware." One would have to be pretty naive to believe that one can afford a $700,000 mortgage on a $35,000 income. The comfort level for me is 1.5 to 2 times my annual income. No more. I know too many "house poor" people, who spend most of their money for their home. That's why I don't feel I can afford a house in the Bay Area. Hell, nobody can, but that didn't stop them from buying those crazy priced houses.

Frankly, those lenders or brokers or whomever approved those crazy mortgages should be thrown in jail. They knew damn good and well those poor people couldn't afford the mortgages, but they got their money so who cares?

So how are they going to fix this mess? Treasury Secretary Henry Paulson came out with suggestions for stricter lending guidelines today. They included things like considering a borrowers ability to pay, verifying employment and income, and appraising the property.

Huh? Shouldn't they have been doing that all along?