Mortgage creativity went a tad too far

As the international audience today watches major U.S. financial institutions come apart at the seams because they were too carelessly and deeply involved in recently-issued mortgage securities, many experts are already starting to look for reasons to the obvious meltdown. There are many of them but it's hard to put the right weight on each. One of them ceratinly has to be the innovative programs the mortgage industry produced over the last decade or so.

Bringing new, creative products to the home loan marketplace is often invigorating and is normally accepted with open arms by all participants. Borrowers, whether purchasing or doing a refinance, could now find a program that fit them just right and at an interest rate that is affordable. Even many of those who couldn't qualify for a loan before were now able to secure financing and become homeowners. Lenders and mortgage brokers had more programs to offer that helped keep their production pipelines steady. Mortgage buyers on the secondary market, like the infamous Fannie Mae and Freddie Mac, were busy packaging mortgages into securities and selling them on, getting a solid fee at every turn. And the investors who bought these securities marveled at the yields they were receiving. Everybody was happy for the time being.

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