Last week’s rollercoaster ride in Wall Street marked the beginning of a credit crunch that will ultimately hurt the chances of low- and moderate-income families from achieving the American dream of homeownership. Everyone agrees that a credit crunch will mean that working families will have a harder time getting a mortgage.

Harder, however, does not mean impossible.

Families with low incomes will have to think and plan further ahead to save money towards a downpayment, clean up their credit reports, and learn as much as possible about all the ins and outs of the home-buying process. Matched-savings programs like those offered by IDA providers may be the bridge to help low-income families get to sustainable homeownership.

And with no more cheap credit, asset-building advocates may now move a much more aggressive policy agenda on savings. For the past several months, we tried to sound off the alarm on the negative savings rates not seen since the Great Depression. Now, policy makers may be more receptive to our ideas on increasing savings, particularly among low-income families.

While these silver linings may not seem all that bright, they do present a way for asset-builders to look through the dark clouds of the current crisis as we continue to move our agenda forward.

Last week the NY Times reported that “The peak month for the resetting of mortgages will come this October…when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total, will reset for the first time this year or next.” In other words, millions of homeowners will see their mortgages increase, adding more pressure to households already heavy in debt.

Indeed, news stories already abound of families at the brink of losing their homes, some being victims of out right fraud. The San Francisco Chronicle reported on four families in the Bay Area that are now Living the American Nightmare.

Such heart-wrenching personal stories present the human-cost of the foreclosure crisis. In order to understand the full nature of the crisis, however, we must take a hard look at the mortgage-industry itself to see how and where the system broke down. Although this aspect of the foreclosure crisis may be complicated and confusing, it is nonetheless vital for asset-building advocates to understand because it is there where we will learn what policy solutions are needed to solve the crisis before us.

The NY Times article below scratches at the surface of the complicated maze that entrapped many borrowers into unsustainable loans:

Mortgage Maze May Increase Foreclosures
By GRETCHEN MORGENSON, Published: August 6, 2007
The complex design of mortgage securities is confounding homeowners struggling to avoid defaulting on their loans.