Powayseller wrote:
“…you don’t need job losses to cause foreclosures. All you need is the borrower’s inability to make the mortgage payment.”
That’s correct. The reason that this went up further than anyone expected was because of the explosion of the exotics, and the reason why it’s going to crash out is because of the exotics. The last time you saw financing deals like this was in the 20’s, and we all know what happened next. When large numbers of people buy on margin in an inflating market, it must unwind somehow. The markets in which over 50% of the buyers over the last few years either did not buy with traditional mortgages or bought as investments are similar to the Florida land rush of the 20’s. The bad money has chased out the good.
The bottom line is that buying real estate with less than 10% down and a non-amortizing loan is pure speculation. This is a grossly abnormal market, and no comparisons to post-30’s RE markets are valid for this market.
I work in a banking service firm that provides software and compliance services. Sorry to say, but the national RE market is already shifting. Everyone’s looking to move to guaranteed loans now. BTW, most banks did not participate in the primary mortgage mess, although many did in the HELOC market and will now take major losses from that, causing them to tighten underwriting standards.
The financing for this disaster came primarily in from non-regulated financial companies. In the last five years, the proportion of home loans packaged and sold in the traditional way dropped massively. The vectors controlling this market have not been seen in the US for over 70 years.
