Subprime Collapse Hits Close To Home

The collapse of the subprime mortgage market was all too predictable. All those low introductory teaser interest rates and short term adjustable rate mortgages were bound to blow up as soon as interest rates went up. And interest rates, at record lows, had nowhere to go but up. Suddenly, millions of new homeowners with low to modest incomes find their mortgage payments doubled--or more--while their incomes haven't exactly kept pace with those of CEO's and the hotshots who packaged all those shaky loans into securities.

For many immigrants, the subprime meltdown is a double whammy, because the income to pay the mortgages on their new homes came from jobs in the formerly booming housing construction industry. (See, e.g., Foreclosure Wave Bears Down On Immigrants.) Now they're losing those jobs or finding work more intermittent. And many used up what little savings they had to get into their new homes that are now about to be foreclosed on.

For the Curmudgeon, the crisis has hit close to home: our nanny, a legal immigrant from Panama (and now a U.S. citizen), who's taken care of our kids for 12 years, is one of the victims of the crisis. She's in better shape than many--she hasn't defaulted and may be able to sell her home at a slight profit. But she needs to sell it soon, because the mortgage payments have doubled and her husband is finding little construction work these days. Selling won't be that easy, either, because she's in a neighborhood of mostly Hispanic immigrants, all of whom are struggling with the same issues, meaning many other homes are also on the market in her area (Woodbridge, Virginia). (We won't let foreclosure happen to her, but we hope we won't have to offer a bailout either.)

As with the S&L crisis of the 1980's, the subprime meltdown will no doubt result in years of lawsuits and recriminations, while regulators--having stood by and watched as the barnyard emptied out--suddenly decide to take steps to put new locks on the gates (which will only deepen the housing crisis).

Perhaps we're to blame. We knew our nanny's loan was risky. But we didn't say anything. After all, it seemed the Washington area housing market could only go up forever (despite ample historical evidence to the contrary, having purchased our home in the downturn of 1991).

No doubt that will be the defense of the mortgage brokers, real estate agents, lenders and everyone else in the chain who profited mightily from the unrealistic housing boom: "who knew rates would go up so dramatically and that home values would suddenly decline?"

It's too bad, really. So where will our nanny go? She'll probably rent one of those townhomes or condos that suddenly no one can sell. And so goes the cycle.