by Donna Burt

Created on: July 04, 2008

As financial headlines concerning the lending crisis have dominated the news over the past year, mixed feelings are prevalent regarding an opinion concerning a "Government Bail Out" for troubled homeowners. While society in general statistically rules for the underdog, in this case, we first have to decide who the underdog is.

As someone who spent their entire career in the lending industry, reading about "money from federal officials" and "legislature to provide aide" require determining a true "unbiased" opinion. As a support person on the front lines, this has not always been easy.

As everyone watched the "housing bubble" grow over the past decade, and the entire industry faced "mortgage lending made easy" as part of our daily job description, understanding how the crisis happened is the first step to deciding if a "government bail-out" is the solution. As with any crisis, society in general searches for blame and answers which seems to have landed on the "free-lending hand of the loan institutions", the truth goes much deeper than that.

A brief lesson in Mortgage 101 is required in this instance. Mortgage lenders are no different than other industry. They supply a service for the sale of a product. While a select few actually own or develop the product, they allow others to sale it for them. Thus introduction to mortgage lending. The seller of the product rarely gets rich; however, the owner or developer in turn becomes quite profitable. Supply and Demand are the basis for fundamental sales success. Thus "subprime" became a product allowed to be sold. As those who developed these products, most likely the investor, began to create different variations to meet lending needs, other programs such as "Alt-A" became linked to subprime.

As "owners/developers" of products saw relatively untouched markets, it was decided that the
"American Dream" belonged to all. While the value of the risk (the property) remained in high standards, it began to allow fewer criterions for the product itself (the loan). As the riskier credit criteria rose, the higher the return for the investor; henceforth, a win-win situation at the time. Thus enter the customer.

As riskier lending practices grew, so did loans to borrowers who otherwise may not have been able to own a home. With creative financing programs opening doors, more and more came in search of home ownership. As investors required less for credit approval, lenders used these tools to increase business. The end result by all parties

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