There's going to be a snap-back to the credit bubble that will hit hard, hit fast, and hit ugly. From the keg being open to public intoxication tickets in just months...
Regulators To Issue Mortgage Warning - Bank Chief Seeks to Rein In Risky Deals
As the real estate market slows, some mortgage lenders are trying to prop up profits by relaxing lending standards for certain types of loans, endangering borrowers and financial institutions, a top banking regulator said yesterday.
Speaking to the New York Bankers Association, John M. Reich, director of the Office of Thrift Supervision, warned that some lenders are making it too easy for unsophisticated borrowers to take on risky nontraditional mortgages that they may not fully understand.
Reich said regulators are "closely monitoring" the growth of loan types in which the payments can suddenly double, creating a payment shock that could force borrowers into foreclosure if housing values were to fall and could also cause financial losses for the lenders who make the loans
About two-thirds of all people who bought homes in the Washington area in 2005 used interest-only or option mortgages, many of which have adjustable interest rates, up from 2.2 percent in 2000, according to statistics compiled by LoanPerformance, a real estate information firm. These loans generally have lower monthly payments than traditional fixed-rate loans, at least at the start, but carry the risk that payments could jump steeply.
April 10, 2006
Pssst.. hey buddy, want a $500,000 loan with no-down?
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How Many Bubbles Before the Fatal One?
"First, to get the afore-mentioned housing related bubble story out of the way, we would initially mention a central bank today forced to raise its interest rate equivalent to our Fed funds rate to 11.5%! That beleaguered central bank is the central bank of Iceland. This miniature country got caught up in the “house prices only go up” mantra as their relatively high rate several years ago attracted a tsunami of liquidity which poured into - you guessed it - the housing market. As more houses than Icelanders emerged, the market flooded and the tsunami went back out to sea, leaving the Iceland kronor down some 20% in a couple of weeks. How the story will play out, we have no idea, but there is at least a lesson to be learned for possible other liquidity driven booms, bubbles and housing explosions for the near future. The same hedge fund driven carry trade that caused this Icelandic meltdown (technical term) is besetting the New Zealand kiwi, recently forcing their short term rate to over 7%. As these hedge fund games unravel, some serious damage will be done to small, innocent countries. Since there has been a residential property bubble, in each instance, the commercial banking systems, in which most mortgages reside in these small countries, will confront increasingly difficult credit quality, default, foreclosure and bankruptcy situations. This may possibly lead to severe damage or crisis in the banking systems involved."
HA HA - the drug dealer loan pusher. That is hilarious!!
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