The December 25, 2006, story described the Rimstad family of Minnetonka, Minnesota, who refinanced their house in 2004 to replace a furnace and pay for a daughter’s wedding, then saw monthly mortgage payment leap as their adjustable mortgage jumped three full percentage points, or, as these things are measured on Wall Street, 300 basis points.

On Dec. 5, Option One Mortgage Corp., a Kansas City (Mo.)-based unit of H&R Block Inc. (HRB), foreclosed because the Rimstads owed more than $18,000 in late charges and attorney’s fees, on top of their past-due payments. After 24 years under the same roof, the Rimstads face an uncertain future. “I don’t know what will happen to us,” says Randy, 57. “We don’t have any place to go.” Option One says it can’t comment on the specific amount owed, but that it has been working with the Rimstads and will continue to “explore options toward a solution.”

H&R Block. Who knew? They seemed so friendly. And the broadening graph:

Millions of other families in the U.S. could soon find themselves in the same dire straits. Some $1.2 trillion in adjustable mortgages will shift to higher rates in 2006 and 2007, more than half of which are to borrowers with less-than-perfect credit, or subprime borrowers, like the Rimstads.

That’s $1.2 trillion, with a “t,” in adjustable mortgages, issued when rates were at historic lows and could only go in one direction. Anybody out there regulating this system?

But nothing beats sustained, drumbeat coverage from a daily newspaper—even if it reads a bit, um, dryly at times. The Times did that. Good for it.

The business press performs a useful role when it allows sophisticated reporters to get into the weeds of complex financial situations, question industry assumptions, point out conflicts, and report back warnings. Not all of these stories are for the general reader. That’s why there’s a business page. Many should be targeted at equally sophisticated top decisions-makers—regulators overseeing the industry, money managers buying its products, and top executives edging further out on the risk curve—to provide the information they need to make decisions.

Among other benefits, this kind of journalism obviates the need for authoritative “explanatory” pieces about how the unfortunate crash just happened and how warnings signals were available for anyone bothering to look.

Dropping The Ball
How the credit-rating agencies got in the middle of the subprime-lending crisis. And why it could be getting worse.
2 April 2007

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014).

Follow Dean on Twitter: @deanstarkman.