The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Haim R. Branisteanu who wrote (12202)	4/19/2004 5:52:28 PM
From: Elroy Jetson	Read Replies (1) of 110194

Virtually all home builders are now offering 100% financing through one means or another. This is why very few home builders survived the down-turn of the early 1990's. Many well recognized names, like Kaufman & Broad, are new firms which bought the name of another company previously operated under that name and went bankrupt by 1993. If a builder has a 20% profit margin, they're lending out their profit margin on top of an 80% loan. Medium sized builders often make the loans themselves and finance the 80% portion with a Warehouse Line of Credit from a major bank. As this type of credit is usually variable, the builder must also offer only variable rate loans or face a huge interest gap risk. These builders normally hope home owners don't refinance as they have an annual profit margin built into the loans. Although a sharp decline in home prices will eliminate even this margin. Larger builders have their own mortgage companies which issue their own paper, rather than using a warehouse line from a bank. Smaller builders usually obtain take-out commitments from the lender who provides the construction loans.

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