The Giant Pool of Money

In a post in February I made a passing comment about our challenges with getting financing for our little project. It’s been fascinating to see the current credit crisis (read: no longer called a “mortgage crisis”) evolve, but a little frightening to feel the effects in a very real way: we are a dual income family, both of us have been in the same line of work for over five years, we both have terminal graduate degrees, excellent credit, and our only debt is student loans – and yet, we struggled mightily to find a bank who would finance our project to build a modest home, designed by a moderately famous architect, in a highly desirable area of a very strong real estate market. At more than one turn in the road, we had lenders who backed out, cancelling their construction loan programs. We finally found a local bank who would work with us; we were the last construction loan they financed – they have since stopped their construction lending program.

Our first mortgage was one of those fancy loans WaMu used to offer – our first mortgage rate (admittedly, it was adjustable) started out at a measly 4.25%. While we realize that there are lots and lots of people who signed up for these loans who are now in a mess of trouble, we do feel fortunate that these types of loan programs were available to us when they were – otherwise, it probably would have taken us a lot longer before we could purchase our first home…and who knows, someone like the Valentines could have purchased our little house.

As for rising interest rates over the last few years, we were really, really lucky to sneak in at just over 7% for this project. Our loan officer smiled politely, but had no empathy in her voice when I lamented this “high rate.” “I remember the 70’s,” she said. Right. I guess 7% does beat 17%.

My most favorite show on radio, This American Life (Ira Glass is totally getting an invitation to my 30^th birthday party – which is likely to happen once the house is finished, some time before I turn 32), recently devoted a full show to explaining what exactly happened to the mortgage industry over the last six years. The episode is called The Giant Pool of Money. Please, please set aside one hour of your life to listen to this podcast. It is fascinating stuff, and will convince you that you should have locked in that 4.25% rate for 30 years way-back-when.

(If you like what you hear, you may consider subscribing to the weekly podcast. You may also consider making a small donation to TAL to support their podcasting program – which they deliver free week-after-week.)

As a follow-up to the TAL piece, there was a great story that ran on NPR’s Morning Edition this morning: Grim Anniversary: Credit Crunch Is 1 Year Old

And also a story on Nouriel Roubini, the “crazy” economist who predicted that things would come crashing down, which appeared in this week’s New York Times Magazine. As an extra teaser, I’ll tell you that toward the end of the article, he does offer a prediction about what will come next. This prediction is not too far off from the conclusion to The Giant Pool of Money.

This may seem like a lot, but its great stuff. And it’s good for you.

Comments

[Gregg]

Woo - A new CornWalker house blog post.

Boo - No photos.

Just tried to email you today about how it was time for an update. (Email got bounced back for some strange reason)

I have a podcast subscription to TAL so I'll take a listen.

Let's get together soon and discuss marketing business!