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rose from 30% to over 50%. This practice stemmed from brokers consciously encouraging the consumer to avoid credit denial by fabricating or failing to provide the standard documents of credit worthiness. Again, while the consumer may have participated, the root cause is the individual broker driving revenue streams.

6) Secondary and Tertiary Mortgages

Second and Third Mortgages became a method to "seal the deal". Primary mortgages were structured to appear as an 80% LTV when the reality was that the 20% plus closing costs came in the form of a second mortgage from another lender or help by the previous owner. By the end of 2006, statistics suggest that up to 18% of loans were actually negative equity loans upon origination.

7) Interest Only Loans

Based on the presumption that real estate values would only appreciate, these loans set up the conditions that the home securing a loan could not effectively act as collateral for the whole debt in the instance of default. Over 33% of the loans issues in 2007 in the United States were interest-only loans. In short, this was a recipe for personal tragedy and widespread economic losses.

Unlike the largely credit un-savvy consumer, everyone that should have known better: federal regulators, legislators,multiple entities in the banking industry rode the wave of profit until it broke on the seawall of reality, leaving the home owner and our econmoy stranded on the shore.

Beth Coughlin, MBA

Sources: Ellis, Luci, "The housing meltdown: Why did it happen in the United States?",BIS Working Papers No 259, Monetary and Economic Department,September 2008

HUD-Treasury Task Force report retreived on 11/16/08 from http://www.treasury.gov/press/ releases/reports/treasrpt.pdf

Learn more about this author, Beth Coughlin.
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