Book 8

The Great Housing Bubble: Why Did House Prices Fall by Lawrence Roberts

Type: Nonfiction

My rating: 4 stars (out of 5)

Why I chose it: I wanted to see what this guy's opinion was as to why he thought house prices fell.

What I liked about it: This is a great book if you are interesting in getting a tutorial on the basics of how house prices are (or should be) determined. I found it extremely interesting that a product was sold at the height of the bubble called an Option ARM. This product gives the borrower three different payment options each month: (1) fully amortizing payment (i.e. like your typical 30-year mortgage where each payment contains a portion toward interest and a portion toward principal), (2) interest-only payment (meaning your principal never decreases), and (3) a negative amortization payment. The last one was a surprise to me! It means that the payment you make is not enough to cover the interest owed so the principal balance increases each month. Someone forgot the "common sense" test when devising this "innovative" lending product. The author says that studies have shown that when borrowers were given these choices, 85% of them chose option #3. Amazing!