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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (5149)	8/26/2002 11:41:58 AM
From: Jim Willie CB	Respond to of 89467

Sean Corrigan, reporting from England: (from Daily Reckoning) - How long will it be until we get zero-finance homes, to go along with the cars? In the desperate urge to translate as much as possible of the inflationary asset- credit spiral in housing back to their own bottom lines, America's mortgage lenders have begun to address the looming affordability problem in the US by importing a range of tricks more typical of the UK market. - Not content with the lowest long-term mortgage rates since Elvis was skinny, home-owners - with the collusion of lenders and appraisers - are resorting to all manner of ruses in order to make their incomes stretch far enough to cover that house payment. - At California-based Countrywide Credit, owners with existing 30-year loans at around 7% have been able to refinance at 6% without paying a dime in closing costs - "nirvana for home owners," Countrywide chief executive Angelo Mozilo told the Charleston Daily Mail, while rubbing his hands together in glee at the fact that his company is on pace to originate $170 billion in loans this year. "And it's accelerating," said Mozilo, after July alone hit $17.1 billion. - Don't even stop to think about the fact that this company, with equity of around $4.5 billion, "services" a portfolio of $400 billion in loans - it's all right, he assures us: all risk is "hedged" using derivative instruments. - But low rates by themselves are not enough. What is helping juice this late cycle phase are the multiplying alternatives to traditional fixed-rate and adjustable- rate loans. - Some of these new products reduce initial payments by charging interest only at first (who needs to sweat to pay off the loan itself when prices are going to go up for years, right?). - Others work by setting a lower fixed rate for three, five or seven years before converting to adjustable rates. Others are offered with virtually no down payments required. - At Wells Fargo, consumer demand for a hybrid mortgage that is fixed for five years and then becomes adjustable has grown more than 150 percent from last fall. The Daily Mail quotes Brad Blackwell, a senior vice president at the San Francisco-based bank, as saying that consumers who refinanced their homes as recently as six months ago have been drawn back by rates that have continued to fall. - Borrowers, especially those with loan amounts exceeding $300,000, "are flocking to this loan in record numbers," he said. - Lending has also been spurred by the willingness of home-loan buyers such as New Deal hangover Fannie Mae and Wells Fargo to accept mortgages representing more than 100 percent of the appraised value of a home. - Who said, "Prudential standards of lending?" - "The credit spigots are as wide open as we've ever seen them," consumer loan expert Keith Gumbinger told the Daily Mail. "You can borrow money in excess of the value of your home. You don't need a down payment, you don't need any money for closing costs. Things could change, but for people with decent credit right now, if you can breathe you can get a mortgage." - Walter Updegrave, CNN Money "specialist", recorded the following gem in response to an online query, "Is it a good idea to keep a home equity line of credit as an emergency fund?" - "Yes," said our Wally, eagerly. "Yes, I think it's a great idea to have a home equity line of credit as an emergency fund. With the economy so unstable, you never know when some financial problem may find its way to your door - a pink slip from an employer who has 'right- sized' you out of your job, unexpected medical expenses, college tuition bills. Being able to write a check against the equity in your home provides a quick and convenient way for you to meet unexpected obligations." - Wow! That's great! If we get into trouble, we'll just sell off some capital. And capital we didn't have to sweat to earn, to boot! How novel! - "But," said Wally, suddenly revealing himself as a party-pooper, "It shouldn't be your only basket of eggs. While I think it's okay for a home equity line to be 'an' emergency fund, I don't think it's a good idea for a home equity line of credit to be your only emergency fund. Which is to say, I think your first line of defense in emergencies should be savings." - Savings? Give us a break, Wally. "Savings" are what our grandparents did; we're so over that.