The Sub-prime implosion

I am all about personal responsibility. You know... you took out the loan, now you deal with the consequences. But seeing it happen to so many people, you have to wonder what is going on. I know three families who were involved with sub-prime predatory lending. (I am sure I know more, but these two I am privy to information about.) In two cases the house was almost paid of when they decided to pull out a little equity by refinancing. The other family refinanced and squeaked what little equity they could out of their house for a Disney World vacation.

Family one - an elderly couple - had almost completely paid off their house. They refinanced once, with no plans to refinance again. The guy that wrote the first refinance started showing up at their house - unsolicited - every year or so with papers for them to sign and a check already cut. They ended up refinancing every year or two to help pay for poor money managing. The last refinance was for $20,000 over the value of the house. They have since lost their house.

Family two had $145 (yes, $145) left on their mortgage. They decided to refinance and pull some equity so that they could buy retirement property. They have since refinanced and have a HELOC. Both mortgages total more than $25,000 more than they could ever hope to sell the house for. They are constantly on the verge of losing their house. They will forgo paying other bills (like heat and food) to pay the mortgage, because if they lose their house they will also lose the retirement property. I am not sure how long they will be able to keep their house, though.

Family three refinanced their house every 18 months for a trip to Disney World. (No, I'm not kidding.) Shockingly enough, they lost their house.

All three families made poor decisions, no doubt about it. The one hat really makes me mad is family one. Who in the hell would give a 30 year mortgage to a couple in their 80's?

So while I all for personal responsibility, I can't help but think that maybe the banks need to step up to the plate and take responsibility in their part in this whole fiasco.

What's the damage? Why banks are only starting to uncover their subprime losses

When Merrill Lynch, the US bank, announced 10 days ago that it was taking $8bn-worth of losses on mortgage-related securities, bankers and regulators around the world reeled in shock. For the writedown was twice the size of the losses that Merrill had forecast just a two and a half weeks earlier - a "staggering" multi-billion dollar gap, as Standard and Poor's, the US credit rating agency, observed.

Last week, for example, a US congressional committee warned that over the next year mortgage lenders could foreclose on 2m American homes, destroying $100bn of housing value. And some private sector economists think the total loss from mortgage problems could reach $200bn or more.