What mattered more than anything, Bob explained, was a person’s credit record. History seemed to show that the most important predictor of whether people defaulted on their mortgages was their “FICO” score (named after the Fair Isaac Corporation, which had developed the main rating system). Investors had become steadily less interested in the details of a person’s financial position. If you had always paid your debts on time before, the theory went, you would probably keep paying on time in the future.
Even if you had a troubled credit history, a huge industry of “subprime” mortgage lenders had arisen to cater to you. Like American Home Mortgage, the subprime lenders relied on complex mathematical models for pricing risk, and incredibly intricate techniques for slicing and dicing that risk. The models showed that defaults on the risky new mortgages were surprisingly low. The models were saying, “Go for it.”
In and around Washington DC, home prices had been climbing faster than incomes for so long that even skeptics were capitulating to the excitement by 2004. In trendy suburbs like Bethesda and Chevy Chase, the median home price had doubled since 1998 and hovered around $700,000. Investors there were tearing down three-bedroom split-levels from the early 1960s and replacing them with $2 million mansions. In slightly less affluent, less glamorous areas like Silver Spring, where I was living in a rental apartment, aging four-bedroom houses with small kitchens were selling for $500,000 and up.
I wasn’t betting on rising prices. With my luck, I thought, the market would head down the moment I decided to buy anything. What I cared about, passionately, was getting married. Patricia Barreiro was the perfect woman: brainy, regal, sexy, fiery, and eclectic. Best of all, she had been one of my closest friends when we were both innocents at an American high school in Argentina. I was the bookish, unathletic son of an American diplomat, a jumbled mix of sexual awkwardness, intellectual energy, and teenage rebellion. Patty, the daughter of an Argentine doctor and occasional political activist, had been born in Buenos Aires but educated in American schools. She was sexy and cerebral, and she loved talking to me about politics and books at a coffee shop every day after school. We were never romantic, and had gone our separate ways after high school.
Patty was now a mother of four in Los Angeles and had recently endured a bruising divorce after twenty-five years of marriage. At forty-eight, she was still a beauty—statuesque, with green eyes and auburn hair. She had remained a voracious reader, devouring books and newspapers, becoming a trained book editor, and nearly completing a master’s degree in Latin American studies by the time of her divorce. But she had become utterly estranged from her husband, a television commercial producer who had become depressed about his work and his life.
My own twenty-one-year marriage had become bitter and quarrelsome and reached the breaking point in 2003. I had just finished a six-year assignment in Germany as the Times’ European economics correspondent. My ex-wife Julia had liked Europe but resented my workaholic habits and frequent traveling. She complained that I gave top priority to the newspaper; second priority to our three boys; and last priority to her. She was probably right. I had become snappy and defensive, tired of what felt like a constant power struggle. Even though we were both happy to return to our old house in Washington, our fighting became even more frequent.