Ed Huntress wrote:

Nationwide? I don't think so. The amount that's been re-financed over the
last few years looks like a lot of debt overhead, but it was low interest
rates, and reasonably low PITI payments, that made it possible. In other
words, unless the economy gets softer people should be able to pay their
mortgages. As long as they can, and unless values really collapse, they'll
probably keep paying them.

In California? Who knows? Your real estate has been riding a bubble for a
couple of decades, and it appears to be a pretty big one in some locations.
If people panic, it would be just like any other bubble. Pop!

Out here, I think it's less likely. As for the lenders, they are overloaded
with debt, which probably is what your link talks about. That paper is
already being discounted as rates inch upward. Financial institutions that
have a lot of uninsured paper are very exposed and are vulnerable to an
economic downturn.

But, like I said, if I was really confident about it one way or the other
I'd find a way to speculate on it and get rich. g

Ed Huntress


Agreed that California is a unique situation. The thing is, as
Californians sell off and abandon the state they put a lot of pressure
on Oregon and Idaho home prices. They have a lot of gain that must be
reinvested in homes within something like 2 years and that sends home
prices in Boise through the roof. When California pops Boise will get
hurt but nowhere near as badly.

Fanny and Freddie don't actually hold the paper for very long. The
producers bundle a set of mortgages into pools and FNMA and FreddieMac
sell them to investors. They just insure the investors against default
so they are not really effected by rate changes directly the way the
investor is.

There are other mortgage insurance companies but those two are so big
that they are hard to compete against. Putting a ceiling on their
exposure would make it a little easier. OTOH, if there is a major down
turn in the ecconomy and the default rate goes way up, Fanny and Freddie
have no possibility of covering their liability. That will make a big
chunk of mortgage money just evaporate. Then, without afordable
financing, home values will drop big time.

That is not likely for several reasons. Traditionally the home mortgage
is the last debt to be defaulted on. Also, the idea of 100 million
people loosing their equity in their largest investment and the collapse
of the one industry that can't be outsourced would give the politicians
nightmares so the Feds would have to step in in some way.

--
Glenn Ashmore

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