Jackson Jambalaya

I first read this story in the Wall Street Journal in 2005 and remember how much it sickened me to read it as craziness abounded on almost every sentence. Reading it now is still a sobering experience in light of the current meltdown:
"As real-estate mania intensifies, the mortgage industry keeps making it easier to borrow. "Low documentation" loans are catching on, including ones where lenders simply take borrowers' word about their income and don't ask for pay stubs. Repayment terms sometimes are stretched as long as 40 years, to help shrink monthly payments. In the most common twist, lenders aren't requiring even token efforts to repay principal in the early years of a mortgage. Interest-only payments suffice. In some cases, borrowers can even pay less than that, allowing interest to pile up and be repaid later.
Skeptics worry that this easy-credit euphoria could end with a real-estate crash and waves of problem loans. Federal Reserve Board Chairman Alan Greenspan warned in June that housing prices in some areas appeared "unsustainable," adding that he was concerned about "the dramatic increase in the prevalence of interest-only loans." In a recent Wall Street Journal survey of 56 leading economists, 11 named a possible housing bust as their biggest worry for the economy.
For now, default rates are low and property prices remain strong. Many aspiring homebuyers are willing to try anything that stretches the amount they can borrow, since house prices continue surging while wages fail to keep pace. Aggressive lenders are enjoying the boom while it lasts...."

That is just the appetizer as Mr. Ray, a loan officer at the time, offered the "Freedom Loan" to his clients:
Fifty miles north of San Francisco, Benchmark is a small, fast-growing mortgage company that typifies the industry's current stampede into interest-only lending. Benchmark gets about 60% of its business from loans with such features....
In an interview, Mr. Aldridge scoffs at people who pay down their mortgages, month by month. (He is the owner of Benchmark)"That's just a way of transferring money to your heirs," he says. "As a borrower, I'd rather make smaller payments and have the money myself."......
Benchmark does much of its business in California, catering to welders, flight attendants and others who want to buy or refinance $500,000 homes. Callers hope to borrow most of the home's value, drawing on household incomes that average just $70,000 a year. At Benchmark, such middle-class strivers are greeted with open arms. True, they may be hard-pressed to cope with traditional mortgages that require principal repayment each month. But they can handle interest-only mortgages with smaller monthly payments....
If even that amount seems too steep, Benchmark offers something called the Freedom Loan. For the first few years, it lets borrowers choose between standard repayment terms -- and a "minimum payment" option calculated on a 1% teaser interest rate. For the first month, that option fully services the mortgage; after that, the interest rate climbs above 5% and the minimum payment covers only about two-thirds of monthly interest due...."

Such garbage loans were justified by the following pitch:
"Benchmark's top executives encourage such serenades. "We paint pictures," says Lance Diener, the company's executive vice president for sales. "This is all about people improving the quality of their lives. If you can save $800 a month on your mortgage payments, maybe you can buy that brand-new Cadillac Escalade...."

Read the rest. Its good. The REST of the story