The American Dream Machine: Underpriced Credit Risk

Like your average government foray into the housing market, the first-time homebuyer credit produced noticeable economic distortions while opening opportunities for creative borrowers of the ‘M. Mouse’ variety.  Today’s Mortgage Bankers Association numbers showed an October drop of 12% to the lowest level in 9 years as Congress deliberated extending the homebuyer credit and prospective homeowners.  Such a modest short term dislocation is a far cry from good ol’ days of FNM and FRE jamming credit down the throats of every underqualified borrower they could find so it could be neatly packaged up in a securitized muddle sold to underqualified investors in Asia and Europe.  The effect of this gargantuan effort was to insure that a full 69% of the citizenry was able to achieve the American dream, which was nicely distilled into owning a poorly-built single family home in a cookie cutter subdivision.