TIME Diagnosis of Patient Zero is Flawed

According to a TIME 24/7 article this morning, “Someone who took out a subprime loan in 2003 is the “patient zero” who began the great recession.” A single borrower set off the series of events that may lead the economy into its greatest downturn since The Great Depression? Blaming the financial meltdown on one borrower is probably the most ridiculous thing I have read since mortgage lending hit the skids. I have a novel idea, “Why don’t we call the mortgage lender or the underwriter “Zero”?

“Patient Zero” (P.Z.) supposedly obtained a subprime mortgage in 2003 to buy a house in Stockton, California. The amount financed was $250,000 and required no down payment. Interestingly enough, according to the article, P.Z. made payments for more than 3 years before the interest rate adjusted. The actual default was after a job loss, not an immediate default because of the interest rate and payment adjustment. Oh yes, an interesting point was that not long after P.Z.’s mortgage defaulted, another mortgage in the same pool defaulted.

Borrowers may default, refinance their mortgage, or sell the home. Those are calculated risks and have always been a part of the equation. With conservative underwriting standards and consistent mortgage products the risk was manageable. The equation became skewed when adequate documentation and standards slipped and the interest rates and payments changed every time the wind blew.

Comparing a P.Z. to a Typhoid Mary is extremely unfair. The pool was contaminated before the default. The risk was excessive and misrepresented to investors. It took a Lender, Mortgage Backed Security, and Risk Assessment to bottle, distribute, and sell the poisoned product to borrowers and investors alike. The financial crisis today is not a Typhoid Mary, it is Biological Warfare. The subprime mortgage market was developed to target minorities and exploited a niche previously undeveloped.