Real Estate Implosion

There's a bunch here, so I'm going to take it in stages. Being a plain vanilla kind of mortgage guy, I really don't have any first-hand knowledge of mortgage products beyond the very boring 30-year fixed. There are some pretty exciting products out there right now. Here is a good rundown from the Washington Post:

Today's pop quiz involves some potentially exciting new products that mortgage bankers have come up with to make home ownership a reality for cash-strapped first-time buyers. Here goes: Which of these products do you think makes sense?
(a) The "balloon mortgage," in which the borrower pays only interest for 10 years before a big lump-sum payment is due.
(b) The "liar loan," in which the borrower is asked merely to state his annual income, without presenting any documentation.
(c) The "option ARM" loan, in which the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.
(d) The "piggyback loan," in which a combination of a first and second mortgage eliminates the need for any down payment.
(e) The "teaser loan," which qualifies a borrower for a loan based on an artificially low initial interest rate, even though he or she doesn't have sufficient income to make the monthly payments when the interest rate is reset in two years.
(f) The "stretch loan," in which the borrower has to commit more than 50 percent of gross income to make the monthly payments.
(g) All of the above.
If you answered (g), congratulations! Not only do you qualify for a job as a mortgage banker, but you may also have a future as a Wall Street investment banker and a bank regulator.

All snark aside, I was pretty surprised by some of the practices in the mortgage market these days. Liar loans don't require any income verification, you tell the mortgage broker how much you make and the broker says, "OK with me, how much do you want?" Even better than liar loans are NINJA loans (No Income, No Jobs or Assets). How exactly does a person gain a house when they have no income, no job, and no assets? Well, the answer, as we're starting to see, is that they don't. Not for long anyway.