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Thread: last gasp of US consumers ... $140 Billion in Q2 Mortgage Equity Withdrawls

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    Default last gasp of US consumers ... $140 Billion in Q2 Mortgage Equity Withdrawls

    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.

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    God/dess Deogol's Avatar
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    Default Re: last gasp of US consumers ... $140 Billion in Q2 Mortgage Equity Withdrawls

    The way out of this is "the well paid consumer."

    Unfortunately, this country has done everything possible to not pay labor (and even professional services) creating this need to borrow money instead of earning it.

    Now we are finally reaching the point where one cannot earn money nor can one borrow it.

    One cannot close factories and send professional work over seas replacing them with Wally World jobs and not expect to see a problem from this incredible imbalance. What so many refuse to see is that when they destroy wealth by destroying these opportunities sooner or later the economy WILL reach equilibrium with what a Wally World employee can afford.

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    Banned Melonie's Avatar
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    Default Re: last gasp of US consumers ... $140 Billion in Q2 Mortgage Equity Withdrawls

    ^^^ you left out one missing link. I agree that the continuing loss of factory jobs and professional work to much cheaper overseas sources is going to continue unabated. I also agree that if nothing changes along these lines, sooner or later we'll wind up with a majority of Americans attempting to live on Walmart level wages. But at the same time there are a few Americans ... the ones that 'own' part of those offshore operations, the ones that 'own' Walmart stock, the ones that 'own' shares in the banks that are collecting extortionist interest rates and late fees from the Walmart workers, the ones that 'own' the rental units that bankrupt former homeowners will be forced to move into ... who will still be profiting big time. It will only be the 'middle class' that gets squeezed out of existance.

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