- The Washington Times - Friday, December 25, 2009

I’ve been writing this column each week since 1996, and there has only been one other instance when my column was published on Christmas Day. It’s quite appropriate that Christmas falls on a Friday when the Home Guide is published in 2009, because it’s been an extraordinary year.

Perhaps the biggest lesson learned so painfully this year is this: Nothing comes without consequences.

To say that the easy credit days of the past backfired is an understatement. While I was busy helping folks with good credit and income buy homes and refinance their existing mortgages, others were telling me I was missing out on a huge opportunity by not entering into the subprime mortgage market.

I was told I could make a lot more money. I was told that I could help increase homeownership in America. I was told that subprime loans were a good thing - they helped folks get out from the “evils” of renting. After all, owning a home is the American dream!

Quite frankly, the subprime mortgage market never appealed to me. While homeownership is certainly a good thing, it’s not so good if you can’t afford to own your own home. It doesn’t take a rocket scientist to understand why I balked at pushing subprime loans.

Consider the following problems with subprime loans:

They were pushed to folks who have a history of being unable to pay their debts and bills in a timely manner.

They compounded an obvious problem by offering mortgage programs with significantly higher interest rates, making homeownership more expensive.

They slapped stiff prepayment penalties on expensive loans, making borrowers with questionable credit unable to pay off the loan by refinancing if their credit improved.

It was an obvious train wreck waiting to happen, and we witnessed the resulting disaster in 2009.

The subprime mortgage collapse infected almost every aspect of the world economy. Investors in mortgage-backed securities stopped investing because they didn’t know what they were buying. Bad loans were mixed with good loans. The “geniuses” on Wall Street figured that real estate values would always go up so the collateral that secured these loans would protect them.

Now we know that the Wall Street folks were wrong. When the ugly reality was finally realized, investors stopped investing and lenders stopped lending, creating the world’s worst credit freeze since the Great Depression.

Without credit, businesses can’t make payroll, consumers stop spending and businesses collapse - creating high unemployment.

To combat this problem, the government spends $800 billion bailing out banks and auto companies and giving out freebies to consumers to entice them to spend money.

This is where we are on Christmas Day in 2009, folks.

In 2010, we will determine where the cards will fall. Will the insanity of easy credit that created no credit reach a happy medium? Will the massive federal spending create growth, jobs and prosperity? Or will it deflate the value of the dollar and create hyperinflation, high interest rates and unemployment?

I have no idea how to answer these questions, but I bet we will have a good idea where things stand a year from now.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at henrysavage@pmcmortgage.com.

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