When it comes to the home mortgage crisis, the keywords for financial disaster are "interest only, adjustable rate." Once the market collapsed, peoples' equity disappeared, making the "interest-only" part of the deal particularly precarious, as refinances became next to impossible, and when unemployment started over the 10%...11%...12% thresholds, the "adjustable rate" part of the deal sent people spiraling into the red.
Overtures by the federal government aimed at helping people in dire straits were flawed from the beginning. True mortgage relief would have constituted a program that not only lowered (or fixed) interest rates, but also reduced loan principles to levels that would allow for refis on more conventional (i.e. fixed rate) terms.
Initially such a program would have been a win/win for homeowners and lenders, but once the banks threw in their cards and decided to start making money off foreclosures -- instead of loans -- the game was over for a whole bunch of people.
As the people in this story found out the hard way: The banks will always win.
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