QUOTE(shorty @ Feb 4 2008, 04:35 PM)
full reamcoarse Debt
It looks like a lot of ready cash is getting taken away from homoaners, at least in California.
Coupled with rising unemployment, this could pose a major headache for already strapped homoaners.
To head off more defaults, Countyslide sent out letters to 122,000 homoaners last week informing them that their home equity credit lines were shut down since their estimated home values had dropped below their loan amounts.
Right behind Countyslide was Chase Home Lending, which notified borrowers in Los Angeles, Imperial and Orange Counties that they could tap their credit lines for no more than 70% of the value of their house. Previously, the limit had been 90%.From the same article.
The structure of these loans appears to spell trouble for Countrywide and other home lenders with big home equity loan books. According to an overlooked Moody's Investors Services note that came out last Wednesday, once a certain threshold of losses is achieved in a home equity loan securitization pool, the bond holder is paid off ahead of the lender.
What's worse is that it's difficult to see how large a lender's exposure is to home equity loans. Known as rapid amortization, this risk is treated as a contingent liability for Countrywide and other home equity loan lenders and is carried off balance sheet, until deterioration occurs and the lender goes on the hook for the loans. Countrywide is the nation's biggest home equity lender, with around 9% of the market.
In the short-term, this is just another blow for a investors in the financial sector. Longer-term however, it looks like a lot of ready cash is getting taken away from homeowners, at least in California. Coupled with rising unemployment, this could pose a major headache for already strapped homeowners.
I love the phrase, contingent liability.
The Tan Man has decided to quit giving money to deadbeats who won't pay him back.