Thursday, July 28, 2005

Bubble Bubble Toil and Trouble

According to a comprehensive report by PMI Group , a residential insurance and credit company based in California, risky “piggyback” loans – simultaneous first and second liens – have exploded, and are now exposing lenders to greater risk. Fourty-two percent of mortgages involved piggyback loans during the first half of 2004, compared with 20 percent in 2001. In the New York region, 32 percent of mortgages use piggyback loans. The August, 2005 study ranks the New York region 14th in overall risk for a “wide decline in house prices over the next two years.”

What isn’t explicitly stated by the report is that real estate is both regional and global, largely due to these very types of financial tools (the financing, after all, knows no boundaries, only the bricks and mortar do). I discussed this very briefly here, and posted a really good Times article on this here.