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Non-Tech : Bill Wexler's Trading Cabana
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To: Bill Wexler who wrote (325)4/2/2004 2:56:59 AM
From: Carl Worth  Read Replies (1) of 6370
 
it's easy to see these loans and throw up a red flag, for the reasons cited in the article and because real estate won't always appreciate like it has recently...i disagree that there is an overall bubble, but certainly prices could "rest" for a while sometime in the next few years

that said though, the big difference between the current situation and what happened 20 years ago is that if a person buys a house with less than 20% down these days, they have to pay PMI, and that gives the lender and the entire housing sector a buffer that it didn't have in the past....certainly if there was a big surge in defaults all at once the housing market would be hurt by the abundance of supply, but even this damage would likely be short lived...meanwhile the PMI system is making billions every year with relatively few claims at the current time, since most houses which go into foreclosure can be sold by the lender for enough money to cover their loan

the down payment is really just insurance for the lender, and since the lender now has PMI as insurance, having a borrower who is living paycheck to paycheck and paying his mortgage each month is really no different than having a borrower who scraped together 10 or 20K for a down payment and then lives paycheck to paycheck, making his payment each month
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