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And I’ll bet that the mortgage companies who are selling the mortgages are small real banks in the community, who will also be servicing the loan.

And they would be making a sound investment.

If you lend out 80% of $100,000 to a buyer that has put down 20% and you accept as collateral a house that can be sold for $100,000 to average buyers that can actually afford them, you have come out ahead if the original buyer defaults on the mortgage.

If you lend out $200,000 to an average buyer that has put zero down payment and who can only afford a $100,000 house without resorting to "Interest Only for the First Four Years" gimmicks and then you sell that ticking time bomb of an I.O.U. to a foolish investor after pocketing a fat commission, the foolish investor has accepted as collateral a house that can be sold for only $100,000 to average buyers that can actually afford them, the foolish investor will be begging the U.S. Government for a bailout with our tax dollars and the idiot buyer will be begging the U.S. Government to pay for their mortgage with our tax dollars.

I predicted the current fiasco on Free Republic back in 2005.

House prices are ultimately determined by how much the buyer can afford to pay per month. The drastic lowering of that payment with "$0 down/interest only" gimmicks, has allowed sellers to charge highly inflated prices that the buyer will not be able to afford once the grace period expires. If you like their house, save up your cash for the day the "interest only" grace period ends and they are forced into foreclosure. .............. 39 posted on Sunday, November 20, 2005 3:02:55 PM by Polybius

I don't consider myself an economic genius and I do not play one on TV.

I do give myself credit for having plain, old common sense when it comes to economics. What I cannot figure out is how we got to the economic mess we are in right now when plain, old common sense, not an Economics Ph.D. from Harvard, was all that it took to figure this out way back in 2005.