To: Mike Johnston who wrote (45829 ) 10/18/2011 10:37:53 AM From: bentway Read Replies (1) | Respond to "But no net new wealth is created."theeconomicanalyst.com On average, the home-resale prices of the 20 metro areas in the Case-Shiller Home Price Index peaked in 2006 after more than doubling since 2000. In Dallas, one of the 20 areas, they rose just 25 percent, gradually, and have barely declined. Across the nation, cash-outs became ubiquitous during the mortgage boom, as skyrocketing house prices made it possible for homeowners, even those with bad credit, to use their home equity like an ATM. But not in Texas. There, cash-outs and home-equity loans cannot total more than 80 percent of a home's appraised value. There's a 12-day cooling-off period after an application, during which the borrower can pull out. ...Fewer Texans took cash out of their home equity than did borrowers in any other state -- and took out less when they did. Homeowners and mortgage brokers weren't alone in their addiction to the cash that flowed from homes-as-ATMs. The entire U.S. economy was right there with them. One of Alan Greenspan's lesser-known contributions to the annals of the credit crisis was a pair of studies he co-authored for the Fed, sizing up exactly how much Americans borrowed against their home equity in the bubble and what it was they were spending their newfound (phantom) wealth on. Greenspan estimated that four-fifths of the trifold increase in American households' mortgage debt between 1990 and 2006 resulted from "discretionary extraction of home equity." Only one-fifth resulted from the purchase of new homes. In 2005 alone, U.S. homeowners extracted more than half of $1 trillion from their real estate via home-equity loans and cash-out refinances. About $263 billion of the proceeds went to consumer spending and to pay off other debts. But not in Texas. A borrower there can secure a home-equity line of credit from a bank. And she can refinance her mortgage or take out a home-equity loan. But the total amount of debt on a home cannot exceed 80 percent of its appraised value, and any proceeds cannot be used to pay off other debts."
