Sunday, September 21, 2008

Your Home Equity is NOT an ATM Machine


No duh.

2 comments:

Rob Miller, Ph.D. said...

I must disagree. Reverse mortgages, HELOCs, and cash-out refinancing are important tools for solving a problem of illiquid home equity. In more general terms, there was an incomplete market for the value of one's house which these products corrected.

Similarly, subprime mortgages aren't bad - the vast majority of subprime mortgages are current on payments. The problem is giving credit to people who are not creditworthy. The problem is underwriting standards, risk management, and rating of risk.

Someone said that a bank's Risk Manager who was doing his job was only risking his job.

Ryan Fuller said...

"In more general terms, there was an incomplete market for the value of one's house which these products corrected."

When you're playing Monopoly, the goal isn't to flip over all your properties. :)

I don't think actually owning the house you're living in is some kind of liquidity problem. If you've leveraged all of your equity for whatever reason, you're basically just a squatter in the bank's house.

"The problem is giving credit to people who are not creditworthy."

Usually we refer to those people as "subprime" don't we?