Homeownership Cannot Be a God Given Right.

There are many lessons to be learned from the mortgage debacle of 2007-2008, so let's list a few: Wall Street can't be trusted (that's obvious), loan brokers aren't boy scouts (duh), payment-option ARMs are dangerous (a given), and my personal favorite: home prices cannot rise by 20% a year forever.

The subprime business as we came to know it over the past eight years is over. We all know that. The only subprime-related loans being funded are being sold to Fannie Mae or Freddie Mac, which are now (and rightfully so) tacking on new delivery and guarantee fees to cover the risk they're taking on. The other type of subprime loans being funded are "hard money" mortgages where the borrower has at least 70% equity in the home and is refinancing because he or she really needs the money.

One of the Baldwin boys (Rick) who used to work at LIME Financial is now running a subprime/hard-money shop called Excelsior Fund. "We're doing bridge loans and equity loans," Mr. Baldwin told us. "We prefer not to call it 'hard money.'"

In other words, we're going back to the days of the 1960s and '70s when subprime was a much smaller niche business and the originators are either keeping the loans themselves or partnering with an investor - like a doctor, dentist, lawyer or hedge fund. If you think Wall Street is waiting to jump right back into subprime then I have some Enron bonds I'd like to sell you.

But I'm getting off track a bit. I was talking about lessons learned. There's been a ton of excuse making over the past year. Here's my favorite, which I will paraphrase: the president of the United States wanted us to increase the homeownership rate and to do so we created "affordability products." Calling a loan an affordability product is like referring to napalm as ant spray. (POAs give consumers four different payment choices each month including negative amortization where they can keep their monthly payments artificially low by adding on to the debt owed.)

This leads to my next point. What came first: the chicken or the egg? Escalating home prices or the payment-option ARM? After covering POAs for several years - I've written about them in this column before - I've come to the conclusion that these loans were one of many reasons why home prices rose so rapidly in once-hot markets. The ...