Originally posted by: Vic
Of course, people will always be able to refi at near 100% LTV. This is one of the big myths of anti-bust people. They think that refis will be able to happen for everybody, automatically. Forget declining credit quality due to over-leveraging using credit cards, forget declining equity, forget lower assets. Lets keep everything in a vacuum!
You know as well as I do that if lenders are given the choice between defaulting at a loss or refi'ing at a loss, they'll do the refi. And if they do have to default at a loss, they're still gonna sell it, and someone is still gonna to buy it and that someone is gonna need financing.
Pardon me for saying so, but as I work directly with the actual parties involved, I think I know a lot more about actual mortgage loan origination than you do. Go back to your pools and your spreadsheets!
BTW, you continue to overstate the severity of the situation, which is as vacuum as it gets. California isn't the entire US. Most consumers do not even carry credit card debt, much less are over-leveraged. Most RE markets have not over-appreciated in the past few years, and those that have are mostly crowded urban areas that have nowhere else to go.
Nor am I an "anti-bust" person. Don't take pages out of Dave's playbook. Some people will lose. The absolute worst that will happen to most people, however, will be to lose equity they never had except on paper anyway.[/quote]
Banks cannot keep refi'ing flipped houses, not only is it sketchy, but it also requires them, in most cases, to keep the assets on balance sheet, since almost no securitization investors will buy those assets. Even if they do, they will require such asinine credit enhancement in the trust as to make the whole structure impossible to finance at a good rate, thus banks will have to finance it through balance sheet, meaning that they'll only extend themselves as far as it's economical to investors.
This leads back to the impossibility of refinancing everything outstanding, which is not currently in securitization structures, a wholly impossible task considering the current capital markets.
I don't give a rats ass who you work with. Especially if they are mortgage brokers, since they are the last to realize they have over-extended themselves, along with people in RE in general. I do listen to the capital markets because they actually have an interest in worrying about the bigger picture. I raise billions of dollars to finance your stupid mortgages. In the past 4 months alone I have helped a bank bolster it's balance sheet by closing more than 4.5 *BILLION* dollars worth of lines of credit just in case of liquidity crisis happens. All banks have them since all banks require contingent financing in case of credit downturns.
I don't listen to mortgage brokers, I listen to mortgage sellers and financiers. I listen to credit agencies and Wall Street. I listen to securitization investors and stock and ABS analysts. I get a view of how the whole market is reacting to the increase in risk.
Let me ask you, Mr. I know the capital markets, what does it mean when the spreads on long-durationed MBS backed bonds have widened by more than 10bps in the last 3 months.
A. That the credit market is getting better?
B. That the credit market is getting worse?
It sure the hell isn't A.
Take for example on Monday, I was sitting on the trading desk of a top5 bulge bracket investment bank, watching on of their secondary market ABS bond traders discussing spreads and the current downgrading of several HELOC ABS backed bonds. The other trader was reading an article fortelling the impending recession.
The bust is coming, I can assure you of that. The capital markets feels it coming and they are girding themselves for it. Now it's just a matter of time. The only people who don't see that are people, like you, desperate to prop up the last vestiges of a boom, hoping that their practices can continue. You are no better than the RE "analysts" who say that we are at the bottom now, praying that they can squeeze a few more suckers in before they lose their jobs.
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