Before the Crash on Wall Street in 1929, loan officers got loose with their lending habits. It cost everyone – including themselves – and they learned. But the generation that followed them didn’t experience the events first hand, so they couldn’t see the bottom line.

After World War II, young veterans came home to establish new lives, but lending practices prevented them from buying the American Dream – a new home. Loan practices (established mostly during the Great Depression) required a down payment, short terms (long back then was 7 years) and only allowed borrowers to use 25% of one income to qualify for the loan.

The federal government stepped in and set up a program that allowed for longer terms, higher qualifying percentages and much smaller down payments. The rush on the loan industry encouraged loan practices in other institutions to follow suit.

Today the loan industry allows borrowers to spread payments out over terms as long as 60 years. They can borrow 100% of the value (or even more) and they are able to use all the house hold income to help establish the ability to pay.

It is no surprise that as lenders have helped borrowers stretch themselves that the breaking point has started to show. Borrowers are seeing interest rates (and payments) climb while real estate values drop. Many now owe much more than the house is worth and are unable to get out from under the situation.

The federal government again wants to step in to repair the loan industry. If history hasn’t already provided the answer then it is likely the industry will never learn.