Risky-mortgage meltdown was predictable, preventable

0 Comments | USA TODAY, August, 2007

It's called "payment shock." A typical homebuyer with slightly blemished credit starts off with a $200,000 mortgage, a 7% interest rate and an initial monthly payment of $1,531. Everything's fine for two years until that low "teaser" rate expires and jumps to 11.5%, adding a whopping $625 to the monthly payment.

What was a stretch becomes unaffordable, the homeowner falls behind and, in the worst case, loses the home.

This domestic tragedy, multiplied many times over, has triggered the meltdown in the subprime mortgage market, where people with less-than-perfect credit records go to find home loans. About one-fifth of the 6.5million such loans originated in 2005 and 2006 will likely end up in foreclosure.

It's still uncertain how far the pain will...