Was Joe an idiot to take a loan he didn’t intend to repay out of his income? Absolutely. Was Mr Banker / Investor an idiot to make the loan? Absolutely. [/quote]
Actually, you are dead wrong. The home “buyers” who made out best over the last 8 years were those who didn’t put anything down and got either an Interest-Only mortgage or a Pay Option mortgage. Because mortgages are non-recourse, not putting anything down and paying only the interest (or less) allows the “buyer” to take any appreciation upside while sticking any depreciation downside to the bank (by defaulting). Home buyers who got screwed the worst over the last 8 years were those who made down payments as that down payment has now evaporated with home price depreciation.
Likewise, once bankers were able to sell mortgages instead of keeping them on their books, they only focussed on the up-front fee associated with making the mortgage and didn’t worry about the quality of the mortgage as it didn’t affect them in the slightest.
So unfortunately, bankers and buyers were mostly behaving rationally in the environment that existed over the past 8 years. It’ll be up to Obama to change the effed-up incentives that George Bush put in place over the last 8 years.
