It’s no coincidence that states with the largest shares of adjustable-rate mortgages -Nevada, California, Arizona, Florida, and Colorado- are also among the states with the highest levels of foreclosures. The link between adjustable rate mortgage (ARM) concentrations and foreclosures has become increasingly apparent in the year or so since the subprime loans that originated at the top of the market started resetting.

This has made the temptation to blame ARMs as the reason for the high number of foreclosures incredibly hard to resist and very few media types has been able to do so. But this does not mean that we have to follow suit without being analytical and even critical in our approach.

Let’s look at the facts. If Adjustable Rate Mortgages were the main culprit in the increase of defaulting mortgage payers and foreclosures then states like Texas which only has a 12% share of the total in adjustable mortgage rates would not show as much of a spike in foreclosures as other states which are more exposed in terms of ARMs.

Yet Texas was 14th in the national statistics in terms of the number of foreclosures being experienced there. This indicates that an entirely different culprit is at play when it comes to foreclosures and that an adjustable rate mortgage only serves to make matters worse.

Looking at Texas as an example we see that the real estate industry there overheated in terms of development with developers and mortgage companies jumping on the bandwagon in order to capitalise on a trend they regarded as unstoppable and capable of constant growth.

This attitude (which it has to be said is totally unrealistic) led to development of housing and properties in more and more remote zones (because of low building costs) where homes were put up quickly, sold and bought with the mortgage companies doing almost anything possible to sell mortgages.

This lack of restraint and somewhat unethical behaviour contributed to an influx of unsuitable buyers in the housing market, which, under any other conditions, would never have been approved for loans in the first place.

So what seems to have gone ‘wrong’, if such a label can easily be applied, in this case, is the fact that the market was allowed to grow unchecked and without even any self-imposed balances and that, beyond any other particular reason, seems to be the most central reason for the sharp rise in foreclosures.

To be sure adjustable rate mortgages have exacerbated a bad deal and made the situation worse but the existence of an ARM, on its own is not enough, It takes greed from the point of the developers who built houses in areas that are less than ideal and greed from the part of the mortgage companies which failed to ensure that even minimum lending criteria were being applied. And it is this approach to real estate that has to change if we want to return to the golden age of the real estate industry in America.