The figures are in for mortgage equity extractions (i.e. refi loans with cash withdrawls) for the second quarter, which came in at $140 billion. First quarter mortgage equity extractions were also revised upward. Basically, these were refi loans set in motion before the onset of public knowledge of major 'subprime' credit problems. These were also the LAST of the refi loans offered before the new regulatory guidlines to lenders re creditworthiness and verifiable income of loan applicants plus 80% loan balance vs market price limits were put into effect.
from
(snip)"Here are the Kennedy-Greenspan estimates of home equity extraction for Q2 2007, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.
For Q2 2007, Dr. Kennedy has calculated Net Equity Extraction as $140.3 Billion, or 7.1% of Disposable Personal Income (DPI). Note that equity extraction for Q1 2007 has been revised upwards to $131.3 Billion.
This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income. [see graph by hitting the above link - sic]
It is very likely that MEW will collapse in Q3 2007, based on the tighter lending standards and falling home prices, leading, most likely, to less consumer spending."(snip)
Please note that Dr. Kennedy estimates that these mortgage equity withdrawls were in essence providing people with 7.1% in extra disposable personal 'income' over and above the after-tax money they earned from their jobs and investments. This also means that with the enacting of new regulatory guidelines for mortgage lenders, this apparent 7.1% boost in disposable income (which has existed more or less continuously since 1999) has now come to an abrupt halt.
At best this 7.1% reduction in 'apparent income' is likely to mean lower levels of 'frivolous' spending on such things as restaurant meals, lap dances, vacations etc. At worst this is likely to mean higher levels of personal bankruptcies, as many of the people extracting equity cash via refi's were actually using the proceeds to pay down delinquent credit card bills, utility bills, car loans etc.



Reply With Quote

Bookmarks