More on the housing bubble

yeah, i've posted a lot on this one, too (here, here, here, and here), and i'm not getting any less concerned as time goes on... when i read statistics like the ones cited in this nyt op-ed piece, my nerves start twitching all over again...

One-fourth of all home buyers - including 42 percent of first-time buyers - made no down payment in 2004, according to the National Association of Realtors. Nearly one-third of all new mortgages this year call for interest-only payments (in California, it's almost half), according to Loan Performance, a mortgage data firm.

Another risky aspect of these sorts of mortgages is that they attract relatively hard-pressed borrowers. Egged on by lenders where mortgage-making has been the one consistent profit center, they tend to be people who can't afford a traditional fixed-rate loan - even at the current low rates.

It's a safe bet that lenders wouldn't be so freewheeling if they had to worry about being paid back in full. But it's unusual for lenders to bear the entire risk of the loans they make: they sell many mortgages to private investment banks, which slice and dice them into various securities - an interest-only portion, say, and a principal-only portion. Those securities are then sold to other investors, like mutual funds, pension funds, hedge funds, European insurance companies and the central bank of China, to name a few. Investors now hold $4.6 trillion in mortgage-backed securities. That's more than the outstanding value of United States Treasuries.

those are some eye-popping numbers all right...

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