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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (46163)	11/27/2005 5:25:53 PM
From: ild	Read Replies (1) \| Respond to of 110194

<<<That alternative may require some cash for closing>>> Nobody brings cash to closing any more. Everything including fees, points etc gets rolled into new loan. Also a mortgage broker will get you some cash out just to keep your happy. You'd be amazed how many people don't read and make sense of the new mortgage loan amount. As you pointed before RE appreciation has been bailing out most people.

To: Ramsey Su who wrote (46163)	11/27/2005 8:34:50 PM
From: sciAticA errAticA	Respond to of 110194

From: Henry C.K. Liu Sent: Sunday, November 20, 2005 2:57 AM Subject: [Longwaves Forum]Re: Fw: HOUSING BUBBLE: the leak is growing and growing..... The housing bubble will burst with a bang without even a price collapse. When house sales slow, the impact does not stay mild. Builders typically finance new house construction with construction loans at high rates, even in this low rate environment, that have short maturity, typically 12 to 18 months. In other words, builders must roll over their construction loans with sales proceeds from finished homes, or the construction loan will default. Thus the financing structure of new homes production is sensitive to sale pace, which in turn is sensitive to sales price and mortgage rates. But prices cannot fall to speed up sales because the land acquisition and construction loans are structured by expectation of continuingly rising prices. When construction loans default en mass, the financial sector goes into convulsion. For existing homes, the weak points are debt service shortfalls, which are caused by rising interest rates and falling equity value (collateral) and stagnant income. With full market price mortgages, the incentive by borrowers to default when the market turns will be irrestitable especially for speculative investors. With cash out fanancing, many homes mortages will be underwater when the market cracks or even just stop rising. In previous crashes, lenders had a 30% equity cushion. After foreclosure, lenders can reduce the price by 30% and put the foreclose home on the market to get all its money back. But with cash out financing thining equity to zero, lenders even after foreclosure cannot reduce prices without eating full loss. Thus prices stay high, halting all sales. No sales, no cash flow means a sharp rise in non-performing assets and the financial structure under housing will collapse with great speed. The crash will not be a orderly correction of prices which would take time, but a collapse of mortgage finance that can suddenly erupt in a matter of weeks . A slow down of sales for six month can suddenly turn into massive defaults of securitized obligations within days, causing hedge funds to go under and pension funds to suffer heavy losses. It will not be merely a housing bubble burst. It will be a massive collapse of the mortgage backed security market with complex counter-party failures. It will be the financial equivalent of a neutron bomb that kills investors but leaving the buildings untouched. There will be no soft-landing. Either keep house price rising or face a massive financial melt down. The Fed can lower frr rate target to below inflation again but still it cannot stop the loss of money velocity, a deadly situation for a debt infested economy. The only option is inflation targeting, but under current circumstances of debt overload, inflation targeting cannot succeed unless wages rise spectacularly and the Fed has foreclosed that option long ago, since the expiration of Humphrey-Hawkins. A sudden sharp rise in US wages will bring on a new wave of corporate bankruptcies. Bernanke, keep the helicoptor in the hanger, its useless. No helcoptor can carry enough money to save the day. If you know what's good for you, withdraw from the new job now and go back to Princeton. Henry C.K. Liu safehaven.com