Mortgage game fallout

Massachusetts businesses know the impact of a credit crunch. During the recession of the 1990s, when New England banks collapsed under the weight of bad real estate loans, even well-established businesses couldn't find credit to expand -- or just survive. The credit crunch deepened that recession, the state's worst in the post-World War II period. Mortgage companies now have less concern for the borrowers' ability to make monthly payments, since they are selling the mortgage anyway.

The incentive for them is to make as many mortgages as they can. That incentive gave birth to subprime mortgages, interest-only mortgages, adjustable rate mortgages and other products that house-hungry but cash-poor families have jumped on. Rising home prices, cashed out in the form of home equity loans, helped the economy ride out the bursting of the tech bubble in the first part of this decade. But when real estate inflation slowed and interest rates rose, the results were predictable. Foreclosures and bankruptcies are up, mortgage lenders are in trouble, and so are all the companies, mutual funds and individuals who invested in mortgages.