"Welcome," says the letter dated May 20, 2005. "It is a pleasure to have you as a new loan customer of Fremont Investment & Loan."

They were only 18 words written at the height of a housing boom.

But mailed to Erin O'Hagan of Sacramento, and multiplied hundreds of thousands of times elsewhere in the United States, they launched a financial crisis that is now rocking the world.

More than three years after getting that letter, O'Hagan said, "Who would have thought it all would crash and burn the way it did?"

Not just her own world.

The whole world.

O'Hagan's story is more than just a tale of her own life – how she lost her job and then her home. It's how one mortgage on Hamilton Street near Interstate 80 and Madison Avenue contributed to the financial chaos we face today. The journey of a single loan, repeated countless times, helps explain why uncertainty has infected world banking and the stock market, why big financial companies want a government bailout to get losses off their books and to get the economy moving.

This is about a loan that turned bad – for its lender, for its borrower and for the investors who came to own a piece of it. On the other hand, it was great for the brokers, the bankers and the lawyers who sold and packaged it with an almost mystical complexity – right up, that is, to the moment that confidence collapsed and everything started to tumble.

O'Hagan buys a home

In the spring of 2005, Erin O'Hagan worked at Chicago Title's Roseville branch, helping close the thousands of escrows that were part of the region's sizzling housing boom.

"I was making a better salary than at any time in my life," she said. "I never thought it would end."

She had moved to Sacramento from Yreka in 1999, after he husband died of cancer. O'Hagan mourned, then sold her house in Siskiyou County and moved south to a rental owned by her sister. Later, her son Jeremy Brown and his wife, Rachel, moved to Sacramento from San Luis Obispo with O'Hagan's infant granddaughter.

It was almost perfect. So was the duplex they found in a clean, modest neighborhood near Madison Avenue and Interstate 80. The residences at 4974 and 4978 Hamilton St. had two bedrooms each, were separated by garages and had a front lawn and plenty of trees.

"It was nothing big and fancy, but we liked it," she said.

So they pooled their gross incomes of more than $100,000 a year and paid $475,000 for the property.

That month – May 2005 – they were one of 5,830 buyers in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties.

There were no real signs of the trouble to come. But it was lurking.

Who knew, for instance, that just 60 days later median home prices in Sacramento County would peak, then start to slide downhill?

And there was the loan that O'Hagan and her son's family took out to buy the property. Today, she can't believe what they signed.

"I had to have 100 percent financing no matter what," she said. "But we had a chance to get a hell of a lot better deal than that."

A good deal – or so they thought

Like so many borrowers, O'Hagan figured her adjustable-rate loan could simply be refinanced before it reset to a higher interest rate in two years. The broker they were working with offered only one package of loans – one for $380,000 and a second for $95,000 for a down payment. Though O'Hagan was in the real estate business, she didn't take time to shop for other types of loans.

The main loan was a risky adjustable with the type of low "teaser" rate that would eventually get so many people across the country into serious financial trouble. For the first two years, the family would pay only the 5.75 percent interest on the $380,000 they had borrowed – $2,664 a month. That payment included property taxes and homeowners insurance.

The second loan, for the $95,000 down payment, was a 30-year loan with a fixed rate of 8.9 percent. It cost $762 per month.

The total monthly payment: $3,426 – $1,713 each.

Call The Bee's Jim Wasserman, (916) 321-1102. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.