I am still short a small part of my LEND short (in the interest of full disclosure). What this second guy on the Yahoo board misses is what everyone else in investing misses too, and that is that we are not in an one-dimensional world. Same as in the decline of the Nasdaq, where SEVERAL problems surface at the same time.
For the lenders, for example, they not just have their possible risky loans. If housing prices tank, loan volume might go down dramatically, ARMs especially, and the loan amounts will shrink, too. So revenue will be even lower, cutting into profit margins hard. Next could be competition for selling loans, whatever who can at any price. And even as Rich pointed out, real-estate loans might be seen as riskier and trade unfavorably, even if treasuries’ rates drop. People will have to put up higher down-payments, which leads to lower loan amounts as well. And add to this all the momentum followers, who will get scared to death if the trend is really down. I am sure there are even more reasons that you guys might know about.
