The mortgage meltdown, in personal, historical detail

Andrews brilliantly describes the pre-collapse climate of easy credit and “financial innovation’’ in the mortgage industry. He details the “new gospel of lending’’ that fueled the bubble: “(1) no borrower is inherently too risky for a loan; (2) riskier borrowers are highly lucrative, as long as you charge a high enough interest rate; (3) you can pass off the risk to someone else.’’ Andrews explains how the traditional protections of lending were tossed overboard. Some “innovative’’ mortgages purposely eliminated the need to verify the borrower’s income; others required no down payment; while some even ignored a borrower’s recent bankruptcy. The most predatory mortgage brokers targeted blacks, Hispanics, and single women with “innovations’’ such as adjustable rate mortgages with low teaser rates for the first year that would then balloon into unaffordable monthly payments later.

One California subprime-loan executive tells Andrews, “if you can fog up a mirror [with your breath], you can get a mortgage.’’ With Wall Street eagerly buying up loans and mortgage-backed securities, lenders worked tirelessly to meet this demand by watering down their practices. Andrews shows clearly how this dynamic led to more bad loans and higher default and foreclosure rates. Risk management was largely tossed out the window. Andrews sarcastically explains the risks predatory lenders ignored in order to grant mortgages: “Bad [credit] history, no income, no documentation, and none of the borrower’s money on the line. What could go wrong?’’

Of course, everything went wrong. The whole bubble was based on the assumption of ever-increasing home values. When skyrocketing prices stalled, the domino effect of all this debt toppled mortgage lenders, banks, homeowners, and the economy. Andrews himself got a $500,000 mortgage that left him scrambling, forcing him to max out his credit cards to pay for food and utility bills. Andrews describes how his debt burden profoundly damaged his relationship with his wife, Patty. When she lost her job, the family finances went completely into crisis, and the bank threatened to foreclose.

Andrews indicts the credit rating agencies (like Moody’s and S&P’s) for become virtual cheerleaders for bad mortgages by granting them triple-A ratings: These ratings agencies “were supposed to be the definitive authorities on evaluating credit risk’’ [146] and they fell asleep at the wheel. He also views federal regulators, especially former Fed chairman Alan Greenspan, as enablers who kept interest rates low and refused to act on growing complaints about predatory lending practices: “Free markets can become corrupt and self-destructive,’’ writes Andrews. “Open competition is not always a self-correcting force, and the absence of regulation can be as lethal to capitalism as overregulation.’’

“Busted’’ is an outstanding, highly accessible primer on the epic rise and disastrous fall of the housing market. As both a work of reporting and a personal account of a homeowner caught in financial crisis, Andrews’s account sheds powerful light on one of the darkest corners of American business history.

Chuck Leddy is a freelance writer who lives in Dorchester.