For people my age, it would have been impossible to buy a house this way when I was a young man. The community bank, which lent the money and had to keep the loan on its books, or sale it as a conforming loan to Fannie, would have looked at me as some kind of deranged fool if I had said that I wanted a house with no money down, an interest only loan, with low payments in the early years so I could afford to pay it-and then, when the payments rose in year five or so we would all pray that my income had risen way way way above what I am earning now so that I could qualify for a better mortgage, or if not, then I would just sell the house in a market rising at a twenty per cent compounded annualized rate and make a lot of money. That sounds crazy but four year ago the lender would just say sign at the dotted line-everyone will make money and some unknown sucker would buy this loan packaged with thousands of others in a CDO and that entity will assume the risk of non-payment.
The current estimate is that 7.6 million properties are under water in the U.S. with another 2.1 million or so teetering at the edge. NYTimes.com Four million homeowners are at least 1 month late in their mortgage payments and 500,000 are already in the foreclosure process. Yahoo! Finance Then there are the millions who are currently meeting the payments, just barely, in situations where it is starting to make sense to them to just walk away from it. These problems will fester and take another year or more to resolve, I suspect.
I would also suggest that the rise in GDP during the first three years of W's second term was not due to his tax cuts so much but by the easy credit prevalent during those years. Easy credit created an artificial demand for housing and products and that increased GDP. Large tax cuts for the wealthy, with a few peanuts thrown to the middle class, primarily increased the gap between the very rich and everyone else. CBS News Between 2002 and 2006, the top 1% saw their real incomes grow at 11% whereas the remainder of the country grew less than 1%. - Yahoo! News Income gap between rich and poor is huge and growing, warns UN reportNation & World | U.S. gap between rich, poor widening | Seattle Times Newspaper
It was easy credit that just created a false sense of prosperity.