The risk profile of what was once considered the safest investment in the land has taken a dramatic swing in the last 18 months. During the peak of the U.S. housing market between 2002 and 2005, bullish forecasters and industry boosters promised that the most prudent investment in the world was U.S. home buyers. Investors from around the globe agreed, investing wildly in the residential mortgage market. What investors did not realize is that while the housing market had performed magically for decades, lenders were underwriting crazy loans to borrowers who often did not understand what they were getting into and whose financial security depended on home-price appreciation. A loan is only as good as the borrower and the underlying asset, which in this case is the value of the real estate. Both have wreaked havoc for investors in the last two years. When the market began to collapse in 2006, investors discovered a dirty little secret that local real estate agents and mortg...
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