The bubble is still bursting.

• Author: Adi, Sean
• Position: DOLLARS SENSE

DURING THE REFINANCE boom of 2000-07, everyone with a valid blood pressure was able to obtain a mortgage to purchase a home. This looked to be a great endorsement for the American Dream as well as the millions of new homeowners. The easy and loosened policies for home loan funding were a success--or were they? Underneath the surface was a layer of financial double dipping that has come into full view. The term is securitization, and this basically means that the home loans were bought and sold in bundled packages on Wall Street. The sub sequent bursting of the real estate bubble led to an avalanche of foreclosures. However, homeowners across the country are still wondering: who really owns the deed to our homes?

There also was the matter of refinancing. This market was characterized by many different factors: loosened lending guidelines, easy money, liar or stated loans, and brokers aggressively pursuing homeowners to refinance and pull cash out of their home equity. Combine all of this simultaneously and you had what now popularly is dubbed the refi-boom. This was great for the economy at the time, as many homeowners were taking hundreds of thousands of dollars in cash-out funds from their homes. I even remember one client story of a cash-out refinance of $2,000,000--nothing like becoming an instant millionaire.

You might remember that businesses also were booming back then; everyone was talking about the "stuff" they were buying. This was in large part due to the fact that these loans were easy to obtain and financing guidelines were loosened. For example, the stated loan was brought to a new level during that era. The stated loan basically allowed someone to "state" what their income was. Thus, these were dubbed "liar loans." Anyone with a decent credit score in essence was able to write down on the application what their monthly/yearly income was, and the banks would do little to verify this. Many consumers used stated or liar loans to purchase homes and refinance their existing ones. Little wonder that this resulted in widespread fraud and real estate scams. One of the reasons why loans were able to be funded and obtained easily was because they were being sold as bundled entities on Wall Street, which made millions from these loans and the people involved in this "securitization" made a lot of money as well.

Once the loans became due years later, the payments on the home loans adjusted, which means they increased, doubling or tripling...