With the housing market in disarray and the economy in a slump as a result, lots of blame seems to be thrown towards the mortgage companies selling their sub-prime mortgages to anyone who could pass the mirror test. Personally I don’t think all the problem rests with the greed of the mortgage companies and their loan officers. It is a three party dance with most of the blame resting on the shoulders of the over exuberant borrower and greedy Wall Street. Thus the title of this post. Too much of a good thing is not always a good thing.

Perhaps we have too short a memory from the glory days of the dot coms when everyone thought that the tech stocks couldn’t go south. In the mortgage arena, borrowers thought that their incomes would always go up, their property values would always go up, their credit scores would go up, their ability to manage their finances would go up and thus everything would be fine. Wall Street obviously felt the same way or they were in it for the quick & big buck hoping that it would work out that way or that Uncle Sam would come and bail them out. Wall Street sent the message to the lender that they had an appetite for higher interest bearing notes (subprime loans & adjustable rate mortgages) and had easy money to loan. The lenders became the messenger boy and the borrower took the bait and now ends up flopping around on the shore without water. Let’s not kill the messenger, but slot them in a significant role to help throw the fish back into the water. (FHA comes to the rescue with higher lending limits)

Everyone who shares in the blame should bear some of the burden. Wall Street should adjust their notes where there would be some loss to the investors which ultimately include a lot of people who own some of these notes in their 401(k)’s, through insurance company portfolios, or pension plans. The mortgage companies should bear some of the loss by lowering interest rates on the loans allowing people to stay in their homes and not putting an overabundance of supply of homes on the market forcing prices down. A lot of borrowers have already shouldered some of the burden by having some of their appreciation evaporate. Also, Wall Street is experiencing some of the blood bath that is now being experienced by the people who were the ultimate lenders (investors in mortgages) in the first place. Peace is sometimes negotiated but in this case the market has placed its demands on those who are now getting slaughtered by too much of a good thing.