Mumbo Jumbos

Here is some interesting fallout from the subprime induced credit crunch currently hitting capital markets. You'll get socked with substantially higher mortgage rates these days, presuming you can get a mortgage, if, get this, you have good credit! Yes, people with good credit are getting hit with higher rates because such people usually come from the ranks of the better off. Thus they tend to take out jumbo mortgages, greater than the $417,000 mortgages that can be purchased by Fannie Mae and Freddie Mac. Rates for conforming mortgages, below the $417,000 threshold, are steady. So the price of risk for lending to wealthier people is adjusting sharply higher in the marketplace, but the price of risk to lend to less well-off borrowers is just dandy. This implies that the rich can't pay but the poor, they're rock solid. This may be the case as many of those jumbo mortgages were taken out by free-wheeling speculators who sought to ride the real estate boom like a bronc. Why then are we reading only stories in the papers about poor, usually minority, families on the verge of being mercilessly spilled out of their homes onto the pavement? Maybe we should be reading stories of the ex-hairdresser who decided to become a real estate mogul and bought four properties at 95+% leverage as the market was racing up. Or perhaps we should be reading about how the government, through Fannie and Freddie, distorts the market by insulating low end borrowers and lenders from the consequences of imprudent real estate investing.