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In Sunday’s Washington Post, Alec Klein and Zachary Goldfarb begin a 3 part series on the housing industry troubles. For anyone who is unclear about how the housing market got into it’s current condition, this first installment gives some great historical background about the conditions in the economy that preceded today’s situation.

Following the Technology boom and bust in the late 90’s, in an effort to stimulate the economy and help bring the country out of a recession, efforts to lower interest rates and make credit available to more people triggered waves of ‘creative investments’ that packaged mortgage securities. Mortgages had been thought of as the best, sure-bet investment anyone could have. Investors, looking for a place to put their money and investment bankers, looking for a way to sell securities, were soon married into a very profitable product called “CMO’s”, collateralized mortgage obligations.

Having a vehicle where everyone could make a lot of money, the industry soon began expanding. With easy credit and lots of willing home sellers and buyers, the industry exploded in mortgage sales and investments. The subprime mortgage market was born

The Post story chronicles Pinnacle Mortgage, a now defunct mortgage company that I and many other appraisers in this area worked for from time to time. In describing the boom, Jeffrey Vrantanina, one of Pinnacle’s founders is quoted as saying “Quite candidly, it all boils down to one word, greed.” Pinnacle’s ‘emerging markets division’ led the way in working with subprime borrowers that later would become casualties in the foreclosure crisis. They made a lot of money in a short period of time, but the collateral damage has been extensive.

Interesting stuff. The next part of the series in Monday’s paper begins to chronicle the bust, when ARM’s begin to reset with higher interest rates and foreclosures increase. Stay tuned!