Were the Risky Mortgages all on Single Family Homes?

Again, I have an uncharacteristically off-topic comment/question for your consideration. In nearly every article I have read in the past couple of weeks, the lending/credit crisis in America has been blamed on home mortgages made under less than stringent lending rules and on complex financial instruments designed – ideally – to package those mortgages into bundles that would make them less risky. The story line goes that a large portion of home owners suddenly stopped paying their mortgages, some went into foreclosure and the bundled financial instruments quickly lost value as potential buyers in the market realized that they either could not understand what was in the bundle and how risky it really was.

My question comment is – I have driven around a portion of America quite a bit in the past half dozen years, I have also talked to and listened to a lot of Americans, and I read about 3-5 business focused publications each week. From what I have seen, observed, and read, the construction industry has also been going gang-busters on commercial buildings like office towers, strip malls, enclosed malls, free standing big boxes and multi-family dwellings. It has appeared to my untrained eye that many of the projects were being built on spec, meaning that there was either a very wealthy builder, a large, well financed corporation, or a developer with ready access to credit. I fully admit that my experience is not a random sample.

Does anyone know if losses on those loans is a major part of the problem? Weren’t some of those commercial buildings – often located in areas where it has been hard for me to figure out where the customers are – financed by sub-prime mortgages? I have read and heard little to nothing about this, so either it did not happen or it did but it does not fit into one of the following two story lines of the crisis:

• The crisis has a root cause of “predatory lenders” supplying teaser loans that increase to unaffordable interest rates and monthly payments to innocent home owners just seeking the American Dream.
• The crisis has a root cause of financiers of the American Dream being forced by the Community Reinvestment Act and other federal pressure to lend to borrowers who never had a hope of paying them back.

The reason I have posted this today is that I drove from Shenandoah National Park to Annapolis yesterday. It was an absolutely gorgeous fall day and my car stereo was not working, so I had a lot of opportunity for looking out the window.

My route (US 33E to US 29N to I-66E to I-495 (outer loop) and US 50E) passed through areas that reminded me of just how many new commercial projects I have seen in the past half dozen years. Many of the new – some still under construction – office towers and shopping centers had big “for lease” signs prominently displayed. For me, that is always the sign of a speculative construction project, but I am really no expert.

Comments are welcome. I am truly confused and very interested in receiving links, comments or stories that provide more insight on this. If a large portion of the financial crisis was caused by failures of speculative mortgages to well-paid, sophisticated builders and developers, why is this part of the story being ignored?